AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER among MICHIGAN INSURANCE COMPANY, WEST BEND MUTUAL INSURANCE COMPANY, DONEGAL GROUP INC. and DGI ACQUISITION CORP. DATED AS OF DECEMBER 6, 2010
Exhibit 2.1
AMENDED AND RESTATED
among
MICHIGAN INSURANCE COMPANY,
WEST BEND MUTUAL INSURANCE COMPANY,
and
DGI ACQUISITION CORP.
DATED AS OF DECEMBER 6, 2010
TABLE OF CONTENTS
Page | ||||
1. The Merger |
2 | |||
(a) The Merger |
2 | |||
(b) The Closing |
2 | |||
(c) Effective Date |
2 | |||
(d) Effect of the Merger |
2 | |||
(e) Articles of Incorporation and By-Laws |
3 | |||
(f) Directors and Officers |
3 | |||
2. Merger Consideration; Conversion of Shares |
3 | |||
(a) Aggregate Consideration |
3 | |||
(b) Conversion of Shares |
5 | |||
(c) Payments; Payment for Shares; Lost Certificates |
5 | |||
3. Representations and Warranties of MICO and WBM |
7 | |||
(a) Organization; Authorization of Transaction |
8 | |||
(b) Governmental Authorization |
8 | |||
(c) Noncontravention |
9 | |||
(d) Brokers’ Fees |
9 | |||
(e) Capitalization |
9 | |||
(f) Subsidiaries |
10 | |||
(g) Financial Statements |
10 | |||
(h) Title to Personal Property |
10 | |||
(i) Absence of Certain Developments |
10 | |||
(j) Undisclosed Liabilities |
11 | |||
(k) Legal Compliance |
11 | |||
(l) Tax Matters |
12 | |||
(m) MICO SAP Statements |
13 | |||
(n) Insurance Matters |
13 | |||
(o) Policy Reserves |
14 | |||
(p) Real Property |
14 | |||
(q) Intellectual Property |
14 | |||
(r) Contracts |
15 | |||
(s) Litigation |
16 | |||
(t) Employees |
16 | |||
(u) Employee Benefits |
17 | |||
(v) Environmental Matters |
17 | |||
(w) Certain Business Relationships |
17 | |||
(x) Rating |
17 | |||
(y) State Takeover Laws |
17 |
(i)
4. Representations and Warranties of DGI |
18 | |||
(a) Organization of DGI and Merger Sub |
18 | |||
(b) Authorization of Transaction |
18 | |||
(c) Governmental Authorization |
18 | |||
(d) Noncontravention |
19 | |||
(e) Capitalization; Interim Operations of Merger Sub |
19 | |||
(f) Brokers’ Fees |
19 | |||
(g) Availability of Funds |
19 | |||
(h) Litigation |
20 | |||
(i) Interested Shareholder |
20 | |||
(j) Compliance with Laws |
20 | |||
(k) Due Diligence |
21 | |||
5. Pre-Closing Covenants |
21 | |||
(a) General |
21 | |||
(b) Notices and Consents |
22 | |||
(c) Operation of Business by MICO |
22 | |||
(d) Access to Books and Records |
26 | |||
(e) Notice of Developments |
26 | |||
(f) Disclaimer Regarding Estimates and Projections |
26 | |||
(g) Special Meeting |
27 | |||
(h) No Solicitation |
27 | |||
(i) Reserves |
27 | |||
(j) Suspension of Dividends |
28 | |||
6. Post-Closing Covenants |
28 | |||
(a) General |
28 | |||
(b) Litigation Support |
28 | |||
(c) Transition |
29 | |||
(d) Tax Matters |
29 | |||
(e) Directors’ and Officers’ Indemnification and Insurance |
31 | |||
(f) Employee Matters |
33 | |||
(g) MICO Principal Office |
35 | |||
(h) Loss and Adjusting Reserves Guarantee |
35 | |||
(i) Non-Disclosure and Non-Solicitation |
37 | |||
(j) Use of Trademarks |
39 | |||
7. Appointment of WBM |
39 | |||
(a) Powers of Attorney |
39 | |||
(b) Liability of WBM |
40 | |||
(c) Actions of WBM |
41 | |||
(d) Letter of Transmittal |
41 | |||
8. Conditions to Obligation to Close |
41 | |||
(a) Conditions to Obligation of Each Party |
41 | |||
(b) Conditions to Obligation of DGI and Merger Sub |
42 |
(ii)
(c) Conditions to Obligations of MICO |
44 | |||
(d) Frustration of Closing Conditions |
45 | |||
9. Termination of this Agreement |
45 | |||
(a) Termination |
45 | |||
(b) Effect of Termination |
46 | |||
(c) Reimbursement of Expenses |
47 | |||
(d) Procedure for Termination |
47 | |||
10. Indemnification |
47 | |||
(a) Indemnification by the Shareholders |
47 | |||
(b) Limitations on the Shareholders’ Indemnification Obligations |
48 | |||
(c) Indemnification by DGI |
50 | |||
(d) Procedure |
51 | |||
11. Miscellaneous |
52 | |||
(a) Press Releases and Public Announcements |
52 | |||
(b) Third Party Beneficiaries |
52 | |||
(c) Entire Agreement |
52 | |||
(d) Succession and Assignment |
52 | |||
(e) Counterparts |
53 | |||
(f) Headings |
53 | |||
(g) Notices |
53 | |||
(h) Governing Law; Jurisdiction |
54 | |||
(i) Amendments and Waivers |
54 | |||
(j) Severability |
54 | |||
(k) Expenses |
54 | |||
(l) Construction |
55 | |||
(m) Incorporation of Exhibits and Schedules |
55 | |||
(n) Disclosure Schedule |
55 | |||
12. Definitions |
55 | |||
(a) Specific Definitions |
55 | |||
(b) Other Terms |
63 | |||
(c) Other Definitional Provisions |
63 |
APPENDICES: |
||||||
Appendix A
|
— | Financial Statements | A-1 | |||
Appendix B
|
— | 2010 Capital Budget | B-1 | |||
Appendix C
|
— | NSI Reinsurance Agreement | C-1 | |||
Appendix D
|
— | Form of Escrow Agreement | D-1 | |||
Appendix E
|
— | Form of Trust Agreement | E-1 | |||
Appendix F
|
— | Form of Surplus Note Purchase Agreement | F-1 |
(iii)
SCHEDULES:
|
||
MICO Disclosure Schedule |
||
DGI Disclosure Schedule |
(iv)
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
This Amended and Restated Agreement and Plan of Merger is made as of December 6, 2010, among
Donegal Group Inc., a Delaware corporation (“DGI”), DGI Acquisition Corp., a Delaware corporation
(the “Merger Sub”), Michigan Insurance Company, a Michigan corporation (“MICO”), and West Bend
Mutual Insurance Company, a Wisconsin mutual insurance company (“WBM”). This Agreement refers to
each of DGI, Merger Sub, MICO and WBM as a “Party” and collectively as the “Parties” as the context
permits or requires.
RECITALS
A. The Board of Directors of MICO has (i) determined that it is in the best interests of MICO
and its Shareholders, individually a “Shareholder” and collectively, the “Shareholders”, and
declared it advisable, to enter into this Agreement that provides for the merger (the “Merger”) of
Merger Sub with and into MICO, with MICO being the surviving corporation, pursuant to the terms of
this Agreement and in accordance with the MBCA and the DGCL, (ii) adopted this Agreement and
approved the execution, delivery and performance of this Agreement and the consummation of the
transactions this Agreement contemplates, including the Merger, pursuant to the terms of this
Agreement and in accordance with the MBCA and the DGCL and (iii) resolved to recommend that the
Shareholders approve and adopt this Agreement.
B. The Board of Directors of WBM has approved the execution, delivery and performance of this
Agreement and the consummation of the transactions this Agreement contemplates.
C. The Board of Directors of DGI has approved the execution, delivery and performance of this
Agreement and the consummation of the transactions this Agreement contemplates.
D. The Boards of Directors of DGI and Merger Sub have (i) determined that it is in the best
interests of DGI and Merger Sub, and declared it advisable, to enter into this Agreement providing
for the Merger pursuant to the terms of this Agreement and in accordance with the MBCA and the DGCL
and (ii) adopted this Agreement and approved the execution, delivery and performance of this
Agreement and the consummation of the transactions this Agreement contemplates, including the
Merger, pursuant to the terms of this Agreement and in accordance with the MBCA and the DGCL.
E. The parties to this Agreement believe that the conditions precedent to the Closing of the
transactions (the “Transactions”) this Agreement contemplates have been satisfied and that all
necessary documentation has been, or will be upon the date of this
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Agreement in accordance with the Agreement and Plan of Merger dated as of July 15, 2010 among
the parties to the Agreement as amended and restated by this Agreement;
F. In connection with the Closing of the Transactions, the parties to this Agreement have
agreed to consummate the Transactions as of the date of this Agreement (the “Closing Date”) for the
purposes of Section 252 of the DGCL and Chapters 13 and 50 of the Michigan Insurance Code but that,
for all other purposes, the Transactions shall be effective as of the close of business on November
30, 2010 (the “Effective Date”).
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual promises made in this
Agreement, in consideration of the representations, warranties and covenants contained in this
Agreement and intending to be legally bound by this Agreement, MICO, WBM, DGI and Merger Sub agree
as follows:
1. The Merger.
(a) The Merger. On the Closing Date but effective as of the Effective Date for all
purposes other than Section 252 of the DGCL and Chapters 13 and 50 of the Michigan Insurance Code
and subject to and upon the terms and conditions of this Agreement and the applicable provisions of
the MBCA and the DGCL, Merger Sub shall merge with and into MICO, the separate existence of Merger
Sub shall cease and MICO shall be the surviving corporation in the Merger (sometimes called the
“Surviving Corporation”) and shall continue its corporate existence as a property and casualty
insurance company under the Laws of the State of Michigan. The name of the Surviving Corporation
shall be “Michigan Insurance Company.”
(b) The Closing. The closing of the transactions this Agreement contemplates (the
“Closing”) shall occur electronically on December 6, 2010, after all of the conditions to the
Closing set forth in Section 8 of this Agreement have been satisfied or waived in writing other
than those conditions to Closing that by their terms cannot be satisfied prior to the Closing, but
subject to the fulfillment or waiver in writing of such conditions at the Closing.
(c) Effective Date. Upon the terms and subject to the conditions set forth in this
Agreement, at the Closing, DGI shall file certificates of merger (the “Certificates of Merger”)
with the Department of Energy, Labor and Economic Growth of the State of Michigan (“DELEG”) and the
Office of the Secretary of State of the State of Delaware (the “Office of the Secretary”) and shall
make all other filings or recordings as may be required under the MBCA and the DGCL and any other
applicable Law in order to effect the Merger in the form required by the MBCA and the DGCL and
otherwise conforming to the
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requirements of the MBCA and the DGCL. The Merger shall become
effective at the close of business on November 30, 2010.
(d) Effect of the Merger. At the Effective Date, the effect of the Merger shall be as
provided in this Agreement, the Certificates of Merger and the applicable provisions of the MBCA
and the DGCL; provided, however, that the Certificates of Merger shall be filed with the Office of
the Secretary and DELEG on, and be effective as of the Closing Date pursuant to applicable
provisions of the MBCA and the DGCL. Without limiting the generality of the foregoing, and subject
to such Certificates of Merger, the MBCA and the DGCL, at the Effective Date, except as otherwise
provided herein for all other purposes, including accounting purposes, all of the property, rights,
privileges, powers, and franchises of MICO and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities, and duties of MICO and Merger Sub shall become the debts, liabilities,
and duties of the Surviving Corporation.
(e) Articles of Incorporation and By-Laws. On the Closing Date but effective as of
the Effective Date, the Articles of Incorporation and the By-Laws of MICO, as in effect immediately
prior to the Effective Date, shall be the Articles of Incorporation and the By-Laws of the
Surviving Corporation.
(f) Directors and Officers. On the Closing Date but effective as of the Effective
Date, the directors of Merger Sub immediately prior to the Effective Date shall be the directors of
the Surviving Corporation as of the Effective Date, until their respective successors are duly
elected or appointed and qualified. The officers of MICO as of the Effective Date shall be the
Surviving Corporation’s officers until their respective successors are duly elected or appointed
and qualified, except that Xxxxx X. Xxxxx shall be Secretary. Upon notice from OFIR, that OFIR has
determined that an officer or director of MICO has unsatisfactory fingerprint results, MICO shall
suspend such director or officer pending final legal resolution of the matters contained in such an
OFIR notice.
2. Merger Consideration; Conversion of Shares.
(a) Aggregate Consideration.
(i) The aggregate merger consideration payable on behalf of Merger Sub to the Shareholders
shall be an amount in cash equal to 122% of the Final Book Value of MICO (the “Merger
Consideration”) as determined pursuant to this Agreement.
(ii) MICO has prepared and delivered to DGI the balance sheet of MICO as of October 31, 2010,
which balance sheet (the “Preliminary Closing Balance Sheet”) included MICO’s calculation of the
Book Value of MICO as of October 31, 2010 (the “Preliminary Book Value of MICO”). WBM, MICO, DGI
and Merger Sub agree that in determining the Preliminary Book Value of MICO and the Final Book
Value of MICO, MICO
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shall establish its reserves for loss and loss adjustment expenses using
methodology consistent with the methodology MICO used in determining such reserves for the year
ended December 31, 2009.
(iii) On the Closing Date, DGI shall pay, or cause Merger Sub to pay to M&T Bank (the “Paying
Agent”) an amount in cash equal to the Preliminary Book Value of MICO (such amount the “Preliminary
Merger Consideration”) DGI shall have reasonably determined after its receipt of the Preliminary
Closing Balance Sheet. On the Closing Date, WBM and DGI shall provide the Paying Agent with joint
written instructions setting forth the amount (the “Purchase Price Escrow Amount”) the Paying Agent
shall pay into an escrow account as provided in the Escrow Agreement in the form of Appendix D to
this Agreement. The Purchase Price Escrow Amount shall equal 10% of the Preliminary Merger
Consideration to secure any amount that may become payable pursuant to Section 2(a)(vii) if the
Merger Consideration, as finally determined, is less than the Preliminary Merger Consideration and
any claims DGI or Merger Sub may have pursuant to Section 10.
(iv) As soon as practicable, but not later than 90 days after the Effective Date, DGI shall
prepare and deliver to WBM DGI’s calculation of the Book Value of MICO as of the Effective Date
(the “Proposed Final Book Value of MICO”). DGI shall calculate the Proposed Final Book Value of
MICO using the same accounting methods, policies, practices and procedures MICO used in the
preparation of the Preliminary Book Value of MICO.
(v) DGI shall permit WBM to review all accounting records and all work papers and computations
DGI used in the preparation of the Proposed Final Book Value of MICO. If WBM does not give notice
of dispute to DGI within 45 days of receiving the Proposed Final Book Value of MICO, the Proposed
Final Book Value of MICO shall be deemed to be the balance sheet of MICO as of the close of
business on the as of the Effective Date (the “Final Closing Balance Sheet”), and the Proposed
Final Book Value of MICO shall be deemed to be the Book Value of MICO as of the Effective Date (the
“Final Book Value of MICO”) and shall be conclusive and binding upon WBM and DGI for purposes of
this Agreement.
(vi) If WBM gives DGI notice of dispute within such 45-day period, WBM and DGI shall negotiate
in good faith to resolve such dispute and determine the final calculation of the Book Value of MICO
as of the Effective Date. Any notice of dispute delivered pursuant to this Agreement shall specify
the nature of the dispute in reasonable detail. If, after 30 days from the date WBM notified DGI
of a dispute as to the calculation and determination of the Final Book Value of MICO, WBM and DGI
cannot agree on the resolution of all of the disputed items, the items still in dispute shall be
referred to the Unrelated Accounting Firm to resolve the dispute, whose decision as to the issues
in dispute shall be conclusive and binding upon WBM and DGI for all purposes of this Agreement.
The Unrelated Accounting Firm shall address only those issues in dispute and shall do so based
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solely on the provisions of this Agreement and not by independent review. The Unrelated Accounting
Firm shall deliver its resolution of the dispute within 90 days of submission of the dispute to the
Unrelated Accounting Firm. The fees and expenses of the Unrelated Accounting Firm pertaining to
the dispute resolution hereunder shall be shared equally by WBM and
DGI.
(vii) If 122% of the Final Book Value of MICO as finally determined pursuant to Section
2(a)(v) or (vi) is greater than the Preliminary Merger Consideration, DGI shall pay to the Paying
Agent, by wire transfer, the amount of such excess (the “Excess Amount”) within five Business Days
after the Final Book Value of MICO has been finally determined (which amount shall be deposited
into the Payment Fund). If 122% of the Final Book Value of MICO as finally determined pursuant to
Section 2(a)(v) or (vi) is less than the Preliminary Merger Consideration, the Paying Agent shall
pay from the Purchase Price Escrow Amount, to DGI, by wire transfer and in accordance with joint
written instructions delivered to the Paying Agent, the amount of such deficit within five Business
Days after the Final Book Value of MICO has been finally determined and thereafter except as
otherwise provided in this Agreement, neither WBM nor the Shareholders shall have any further
liability with respect to DGI.
(b) Conversion of Shares. At the Closing Date but effective as of the Effective Date,
by virtue of the Merger and without any action on the part of DGI, Merger Sub, MICO, WBM or the
Shareholders, pursuant to this Agreement and the MBCA and the DGCL, subject to the other provisions
of this Section 2:
(i) Each Share of MICO issued and outstanding immediately prior to the Closing Date but
effective as of the Effective Date shall be converted into the right to receive an amount in cash
(subject to any applicable withholdings specified in Section 2(c)(i)), without interest thereon,
equal to the Merger Consideration, less the Purchase Price Escrow Amount divided by 2,098,720.996,
which is the number of outstanding Shares, other than any Shares to be cancelled pursuant to
Section 2(b)(iii) (the “Per Share Merger Consideration”), payable to the holder thereof upon
surrender of the certificate representing such Share. As of the Closing Date, all outstanding
Shares shall no longer be outstanding and shall automatically be cancelled and shall cease to
exist, and each holder of a certificate representing any outstanding Shares shall cease to have any
rights with respect thereto, except the right to receive the Per Share Merger Consideration.
(ii) Each share of common stock, par value $1.00 per share, of Merger Sub (the “Merger Sub
Common Stock”), issued and outstanding immediately prior to the Closing Date, shall be converted
into and exchanged for one validly issued, fully paid and non assessable share of voting common
stock, par value $1.00 per share, of the Surviving Corporation (the “Surviving Corporation Common
Stock”). From and after the Closing Date, each outstanding certificate which represented shares of
Merger Sub Common Stock shall evidence ownership of and represent the number of shares of Surviving
Corporation
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Common Stock into which such shares of Merger Sub Common Stock shall have been
converted.
(iii) All Shares held in MICO’s treasury as of the Closing Date shall automatically be
cancelled and retired and all rights in respect thereof shall cease to exist, without any
conversion thereof or payment of any consideration therefor.
(c) Payments; Payment for Shares; Lost Certificates.
(i) Immediately following the Closing Date, DGI shall deposit, or shall cause to be deposited,
with M&T Bank, for the benefit of the Shareholders and for exchange and payment pursuant to this
Section 2 through the Paying Agent, cash in an amount equal to the Preliminary Merger Consideration
(the “Payment Fund”). Upon the making of such payment to the Paying Agent, DGI, Merger Sub and the
Surviving Corporation shall thereafter have no further liability to any Shareholder for payment for
any of the Shares, except for the payment of the Excess Amount, if applicable, or as otherwise set
forth in this Agreement. The Paying Agent shall, pursuant to irrevocable written instructions
executed by WBM, deliver out of the Payment Fund all amounts received by the Paying Agent for the
account of the Shareholders, except to the extent paid into the Purchase Price Escrow Amount. The
Paying Agent shall be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any Shareholder such amounts as are required to be deducted and
withheld with respect to the making of such payment under the Code, and the rules and regulations
promulgated thereunder or any provision of any state, local or foreign tax Law. To the extent such
amounts are so withheld, such withheld amounts shall be treated for all purposes of this Agreement
as having been paid to the holder of the Shares in respect to which such deduction and withholding
were made.
(ii) At or prior to the Closing Date, [a] each Shareholder who held at the Closing Date an
outstanding certificate or certificates that represented outstanding Shares (the “Certificates”)
shall surrender such Certificates to MICO, together with a completed and duly executed letter of
transmittal (a “Letter of Transmittal”), [b] upon such surrender of a Certificate and delivery of a
duly completed and executed Letter of Transmittal, the holder of the Certificate will be entitled
to receive an amount equal to [i] the number of Shares represented by such Certificate, multiplied
by [ii] the Per Share Merger Consideration, payable promptly following the Effective Date, to an
account designated in writing by such Shareholder, [c] the Paying Agent shall promptly pay such
amounts to such holder and [d] the Surviving Corporation shall cancel the Certificates so
surrendered. No interest will be paid or accrue on the Merger Consideration payable upon the
surrender of the Certificates. Subject to Section 2(c)(v), under no circumstances will any holder
of a Certificate be entitled to receive any part of the Merger Consideration until such holder
shall have surrendered such Certificate and shall have duly executed the Letter of Transmittal and
delivered such Letter of Transmittal to MICO. Until surrendered and exchanged for shares of the
Surviving
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Corporation, no Shareholder shall be entitled to receive any dividends or other
distributions declared and paid by the Surviving Corporation.
(iii) As described in Section 2(a)(vii), within five Business Days of the determination of the
Final Closing Balance Sheet and the Final Merger Consideration, DGI shall deposit, or shall cause
to be deposited, with the Paying Agent cash in an amount equal to the Excess Amount, if there is an
Excess Amount. In accordance with the applicable terms of Section 2(c)(ii), as soon as practicable
thereafter, the Paying Agent shall distribute the Excess Amount to the Shareholders in proportion to the Merger Consideration allocable to each
Shareholder.
(iv) If payment is to be made to a Person other than the Person in whose name a surrendered
Certificate is registered, the Certificate must be properly endorsed or otherwise in proper form
for transfer and the Person requesting such payment must agree to pay any applicable transfer or
other taxes or establish to the reasonable satisfaction of DGI and the Surviving Corporation that
such tax has been paid or is not applicable.
(v) If any Certificate has been lost, stolen or destroyed, the Paying Agent will issue the
applicable portion of the Merger Consideration deliverable in respect thereof upon receipt of an
affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed.
After the Closing Date, until surrendered in accordance with these provisions, each Certificate
shall represent only the right to receive the applicable portion of the Merger Consideration as set
forth in this Agreement.
(vi) After the Closing Date, there shall be no transfers on the stock transfer books of the
Surviving Corporation of the Shares which were outstanding immediately prior to the Closing Date.
Certificates presented to the Surviving Corporation after the Closing Date shall be cancelled.
(vii) Any portion of the Payment Fund that remains undistributed to the Shareholders for one
year after the Closing Date shall be delivered to DGI upon demand, and any Shareholder who has not
theretofore complied with this Section 2 shall thereafter look only to DGI for payment of such
Shareholder’s claim to any part of the Merger Consideration. None of DGI, Merger Sub, WBM or the
Surviving Corporation shall be liable to any Person in respect of any Merger Consideration
delivered to a public office pursuant to any applicable abandoned property, escheat or similar Law.
If any Certificates representing outstanding Shares shall not have been surrendered immediately
prior to the date on which any Merger Consideration in respect of such Certificate would otherwise
escheat to or become the property of any Governmental Authority, any such Merger Consideration in
respect of such Certificate shall, at such time and the extent permitted by applicable Law, become
the property of DGI, as the agent of those Shareholders that have failed to surrender
-7-
their Certificates, free and clear of all claims of interest of any Person previously entitled thereto.
3. Representations and Warranties of MICO and WBM. MICO and WBM hereby represent and
warrant, severally and not jointly, to DGI that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and shall be correct and complete as of the
Closing Date, except as set forth in the corresponding section of the disclosure schedule delivered
by MICO to DGI on or prior to the execution of this Agreement (the “MICO Disclosure Schedule”) and
as amended by Schedule A to this Agreement. The MICO Disclosure Schedule shall be arranged in
paragraphs corresponding to the lettered paragraphs contained in this Section 3; provided, however,
that any event, fact or circumstance disclosed in any lettered paragraph of the MICO Disclosure Schedule shall be
deemed to be a disclosure for purposes of all other lettered paragraphs of the MICO Disclosure
Schedule so long as it is reasonably apparent that such disclosure applies to such other lettered
paragraphs of the MICO Disclosure Schedule.
(a) Organization; Authorization of Transaction.
(i) MICO is a corporation duly organized and validly existing under the Laws of the State of
Michigan. MICO is duly authorized to conduct business and is in good standing under the Laws of
the State of Michigan and does not conduct business in any other state. MICO has all requisite
corporate power and authority and all governmental licenses, authorization, permits, registrations,
Orders and approvals to carry on the businesses in which it is engaged on the date of this
Agreement (the “MICO Permits”), except for those powers, authorizations, licenses, permits,
registrations, Orders and approvals the absence of which would not, individually or in the
aggregate, reasonably be expected to have a MICO Material Adverse Effect. MICO is in compliance
with the terms of the MICO Permits, except where the failure to be in such compliance has not had
and would not, individually or in the aggregate, reasonably expected to have a MICO Material
Adverse Effect.
(ii) MICO has full corporate power and authority to execute and deliver this Agreement and to
perform its obligations under this Agreement and to consummate the transactions this Agreement
contemplates, subject, in the case of the Merger, to obtaining the affirmative vote of the
necessary number of the votes entitled to be cast by holders of the Shares (the “Requisite
Shareholder Vote”). This Agreement constitutes the valid and legally binding obligation of MICO
and WBM, enforceable against each of them in accordance with its terms and conditions, except as
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar
Laws affecting creditors’ rights generally or by general equitable principles and subject to the
Requisite Shareholder Vote.
-8-
(iii) This Agreement has been duly executed and delivered by MICO and WBM and, assuming due
authorization, execution and delivery by DGI and Merger Sub, constitutes a legal, valid and binding
agreement of MICO and WBM, enforceable against MICO and WBM in accordance with its terms, subject
to bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting creditors’
rights generally or by general equitable principles. The approval of this Agreement by the
Requisite Shareholder Vote is the only vote of the holders of any class or series of capital stock
of MICO or of any other obligation of MICO and WBM necessary to approve this Agreement or approve
the transactions this Agreement contemplates.
(b) Governmental Authorization. The execution and delivery of this Agreement by MICO
and WBM do not, and the performance of and the consummation by MICO and WBM of the transactions to
which either of them is a party that this Agreement contemplates, will not require at or prior to
the Closing any consent or approval by, or filing with, any Governmental Authority, other than (i) the filing of the Certificates of Merger with
the DELEG and the Office of the Secretary, (ii) approvals or filings of MICO or WBM (the “MICO
Insurance Approvals”) under all applicable state Laws regulating the business of insurance or
otherwise affecting the transactions this Agreement contemplates, as set forth in Section 3(b) of
the MICO Disclosure Schedule (collectively, the “Insurance Laws”), (iii) DGI Insurance Approvals,
assuming the accuracy and completeness of Section 4(c) of the DGI Disclosure Schedule, and (iv) any
other consents, approvals or filings the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected to have a MICO Material Adverse Effect or
prevent, materially delay or materially impair the consummation of the transactions this Agreement
contemplates.
(c) Noncontravention. Except as set forth in Section 3(c) of the MICO Disclosure
Schedule, neither the execution and the delivery of this Agreement, nor the consummation of the
transactions this Agreement contemplates, shall (i) violate any Law or Order to which MICO is
subject or any provision of the Organizational Documents of MICO or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify or cancel, or require any notice under any agreement, contract,
lease, license or instrument to which MICO is a party or by which it is bound or to which any of
its assets are subject, except where the violation, conflict, breach, default, acceleration,
termination, modification, cancellation or failure to give notice would not have a MICO Material
Adverse Effect or a material adverse effect on the ability of the Shareholders or MICO to
consummate the transactions this Agreement contemplates. Except for the MICO Insurance Approvals
or as otherwise set forth in Section 3(c) of the MICO Disclosure Schedule, MICO is not required to
give any notice to, make any filing with, or obtain any authorization, consent or approval of any
Governmental Agency in order to consummate the transactions this Agreement contemplates, except
where the failure to give notice, to file or to obtain any authorization, consent or approval would
not have a
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MICO Material Adverse Effect or a material adverse effect on the ability of the
Shareholders or MICO to consummate the transactions this Agreement contemplates.
(d) Brokers’ Fees. Neither the Shareholders nor MICO has any liability or obligation
to pay any fees or commissions to any broker, finder or investment banker with respect to the
transactions this Agreement contemplates for which DGI could become liable or obligated, except for
the fees of Xxxxx, Xxxxxxxx & Xxxxx, Inc., which shall be paid by WBM, in its capacity as the
majority shareholder of MICO and not on behalf of the Shareholders in its capacity as their
representative.
(e) Capitalization. Section 3(e) of the MICO Disclosure Schedule sets forth for MICO
(i) the number of shares of authorized capital stock of each class of its capital stock, (ii) the
number of issued and outstanding shares of each class of its capital stock, the names of the
holders thereof, and the number of shares held by each such holder, and (iii) its directors and
officers. All of the issued and outstanding shares of capital stock of MICO have been duly
authorized and are validly issued, fully paid and nonassessable. Each Shareholder holds of record
all of the Shares of MICO set forth next to such Shareholder’s name in Section 3(e) of the MICO Disclosure Schedule, free and clear of any restrictions on transfer and
Security Interests other than restrictions under the Securities Act and state securities Laws and
the Shareholders’ Agreements. Except as set forth on Section 3(e) of the MICO Disclosure Schedule,
there are no outstanding or authorized options, warrants, purchase rights, subscription rights,
conversion rights, exchange rights or other contracts or commitments that could require any
Shareholder to sell, transfer or otherwise dispose of any capital stock of MICO or that could
require MICO to issue, sell or otherwise cause to become outstanding any of its capital stock, in
each case, other than this Agreement and the Shareholders’ Agreements. There are no outstanding
stock appreciation, phantom stock or similar rights with respect to MICO. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting of any capital
stock of MICO.
(f) Subsidiaries. MICO has no Subsidiaries and is not a partner or member of any
partnership, joint venture or other similar relationship.
(g) Financial Statements. Attached hereto as Appendix A are the following financial
statements (collectively the “Financial Statements”): (i) MICO’s audited balance sheet and
statements of income, stockholders’ equity and cash flows as of and for the years ended December
31, 2007, December 31, 2008 and December 31, 2009 (December 31, 2009 shall be referred to herein as
the “Most Recent Fiscal Year End”) and (ii) MICO’s unaudited balance sheet and statements of income
and cash flows (the “Most Recent Financial Statements”) as of and for the period beginning January
1, 2010 and ended March 31, 2010. The Financial Statements have been prepared in accordance with
SAP applied on a consistent basis throughout the periods covered thereby and present fairly in all
material respects the financial condition of MICO as of such dates and the results of operations of
MICO for such periods; provided that the Most Recent Financial Statements are subject to normal
year end
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adjustments and lack footnotes and other presentation items. The Financial Statements
include notes setting forth those adjustments that would be made if the Financial Statements were
prepared in accordance with GAAP.
(h) Title to Personal Property. Except as (i) set forth on Section 3(h) of the MICO
Disclosure Schedule or (ii) as would not constitute, individually or in the aggregate, a MICO
Material Adverse Effect, MICO has good and valid title to, or a valid leasehold interest in, the
material tangible personal property that is reflected on the Most Recent Balance Sheet, free and
clear of any Security Interest except for Permitted Liens.
(i) Absence of Certain Developments. Except as set forth on Section 3(i) of the MICO
Disclosure Schedule or otherwise contemplated by this Agreement, since the Most Recent Fiscal Year
End, MICO has not suffered any MICO Material Adverse Effect. In addition to the foregoing, since
that date, except as set forth on Section 3(i) of the MICO Disclosure Schedule, MICO has not:
(i) borrowed any amount or incurred any material liabilities, except amounts borrowed or
liabilities incurred in the Ordinary Course of MICO’s Business or under contracts entered into in
the Ordinary Course of MICO’s Business;
(ii) mortgaged, pledged or subjected to any material lien or other encumbrance, any material
portion of its assets, except for Permitted Liens;
(iii) issued, sold or transferred any of its capital stock, securities convertible into its
capital stock or warrants, options or other rights to acquire its capital stock, or any notes,
bonds or debt securities;
(iv) redeemed or purchased any shares of its capital stock;
(v) made any material change in employment terms for any of its directors or officers outside
the Ordinary Course of MICO’s Business; or
(vi) committed to do any of the foregoing.
(j) Undisclosed Liabilities. MICO has no liability, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, except for (i) liabilities accrued or reserved for on the Most
Recent Balance Sheet, including any notes thereto, (ii) liabilities under agreements, contracts,
leases, licenses and other arrangements, (iii) liabilities reflected on the MICO Disclosure
Schedule, (iv) liabilities not required to be disclosed or reflected on financial statements
prepared in accordance with GAAP or SAP, (v) liabilities which arise or have arisen in the Ordinary
Course of MICO’s Business, (vi) insurance claims or related litigation or arbitration arising on
the Ordinary Course of MICO’s Business, (vii)
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liabilities that would not have a MICO Material
Adverse Effect and (viii) liabilities arising or incurred in connection with the transactions this
Agreement contemplates.
(k) Legal Compliance.
(i) To the Knowledge of MICO, MICO is in compliance with all applicable Laws, except where the
failures to comply would not have, or would not reasonably be likely to have, individually or in
the aggregate, a MICO Material Adverse Effect. Except as set forth on Section 3(k) of the MICO
Disclosure Schedule, MICO has not received any written communication from any Governmental
Authority that alleges that MICO is not in compliance with any Laws, except where the written
communication alleges a failure to comply that would not reasonably be expected to have a MICO
Material Adverse Effect or where the alleged failure to comply has been substantially resolved or
is no longer alleged by such Governmental Authority.
(ii) There is no pending or, to the Knowledge of MICO, threatened proceeding to which MICO is
subject before any Governmental Authority regarding whether MICO has violated, nor is there any
pending or, to the Knowledge of MICO, threatened, investigation by any Governmental Authority with
respect to possible violations of, any applicable Laws, except for such violations or possible
violations that have not had and would not, individually or in the aggregate, reasonably be
expected to have a MICO Material Adverse Effect.
(iii) There is no proceeding to which MICO is subject before any Governmental Authority
pending or, to the Knowledge of MICO, threatened in writing regarding whether MICO has violated any
applicable Insurance Laws, nor any investigation by any Governmental Authority pending or, to the
Knowledge of MICO, threatened in writing with respect to possible violations of any applicable
Insurance Laws, except for proceedings or investigations relating to violations or possible
violations which would not, individually or in the aggregate, reasonably be expected to have a MICO
Material Adverse Effect. Since January 1, 2010, MICO has filed all material reports required to be
filed by it with its domiciliary state insurance department or such failure to file has been
remedied. Except as required by applicable Law, there are no written agreements, memoranda of
understanding, commitment letters or similar undertakings binding on MICO to which MICO is a party,
on the one hand, and any Governmental Authority is a party or addressee, on the other hand, or
Orders specifically with respect to MICO, that [a] limit in any material respect the ability of
MICO to issue insurance policies under its MICO Permits, or [b] impose any requirements on MICO in
respect of risk based capital requirements that materially increase or modify the risk based
capital requirements imposed under applicable Insurance Laws except, in each case, as has not had
and would not, individually or in the aggregate, reasonably be expected to have a MICO Material
Adverse Effect.
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(l) Tax Matters. Except as set forth on Section 3(l) of the MICO Disclosure Schedule:
(i) WBM has filed on MICO’s behalf all Income Tax Returns required to be filed by MICO, and
has paid all Income Taxes shown to be due and payable by MICO, except where the failure to pay such
Income Taxes would not have a MICO Material Adverse Effect.
(ii) No deficiency or proposed adjustment which has not been resolved or settled for any
amount of Income Tax has been proposed, asserted or assessed in writing by any taxing authority
against MICO, except where such deficiency or proposed adjustment would not have a MICO Material
Adverse Effect.
(iii) MICO has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other third party, except where failure to withhold and pay such Taxes would not
have a MICO Material Adverse Effect.
(iv) Section 3(l) of the MICO Disclosure Schedule lists those Income Tax Returns that
currently are the subject of audit or for which written notice of intent to audit has been
received.
(v) MICO has not waived any statute of limitations in respect of Income Taxes or agreed to any
extension of time with respect to a Tax assessment or deficiency.
(m) MICO SAP Statements. MICO has filed or submitted all MICO SAP Statements required
to be filed with or submitted to the Office of Financial and Insurance Regulation of the State of
Michigan for MICO on forms prescribed or permitted by such department, except for such failures to
file or submit which would not, individually or in the aggregate, reasonably be expected to have a
MICO Material Adverse Effect. The MICO SAP Statements were prepared in all material respects in
conformity with SAP applied on a consistent basis for the periods covered thereby, except as may be
indicated in the notes thereto, and the MICO SAP Statements fairly present, in all material
respects, the statutory financial position of MICO as at the respective dates thereof and the
statutory results of operations of MICO for the respective periods then ended. No material
deficiency has been asserted in writing with respect to any MICO SAP Statements by the domiciliary
state insurance departments for MICO that has not been remedied. The annual statutory balance
sheets and income statements included in the MICO SAP Statements have been, where required by
applicable Insurance Law, audited by an independent accounting firm of recognized national or
international reputation.
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(n) Insurance Matters.
(i) To the Knowledge of MICO, as of the date of this Agreement, all reinsurance treaties or
agreements to which MICO is a party or under which MICO has any existing material rights,
obligations or liabilities (the “MICO Reinsurance Agreements”) are in full force and effect in all
material respects in accordance with their terms. MICO is not in material default as to any
provision thereof. Since January 1, 2010 through the third Business Day prior to the date of this
Agreement, MICO has not received any written notice to the effect that [a] the financial condition
of any reinsurer party to any such agreement is materially impaired to the extent that MICO
reasonably believes may result in a default or [b] there is a material dispute with respect to any
material amounts recoverable by MICO pursuant to any MICO Reinsurance Agreement. Except as set
forth on Section 3(n) of the MICO Disclosure Schedule, since January 1, 2010, MICO has not entered
into any reinsurance treaty or agreement under which it has assumed any material liabilities of any
Person.
(ii) With respect to any MICO Reinsurance Agreement for which MICO has taken credit for
reinsurance ceded on its MICO SAP Statements, [a] there has been no separate written or oral
agreements between MICO and the assuming reinsurer that would under any circumstances reduce,
limit, mitigate or otherwise affect any actual or potential loss to the Parties under any such MICO
Reinsurance Agreement, other than inuring contracts that are explicitly defined in any such MICO
Reinsurance Agreement, [b] for each such MICO Reinsurance Agreement entered into, renewed or
amended on or after January 1, 2010, for which risk transfer is not reasonably considered to be
self evident, documentation concerning the economic intent of the transaction and the risk transfer
analysis evidencing the proper accounting treatment, as required by Statutory Statement of
Accounting Principle No. 62 Property & Casualty Reinsurance (“SSAP No. 62”), is available for
review by the domiciliary state insurance departments for MICO, [c] from and after January 1, 2010,
MICO complies, and has complied in all material respects, with all of the
requirements set forth in SSAP No. 62 and [d] from and after January 1, 2010, MICO has, and
has had, appropriate controls in place to monitor the use of reinsurance and comply with the
provisions of SSAP No. 62.
(iii) Except for regular periodic assessments in the Ordinary Course of MICO’s Business or
assessments based on developments that are publicly known within the insurance industry, as of the
date of this Agreement, no material claim or material assessment is pending or, to the Knowledge of
MICO, threatened in writing against MICO by any state insurance guaranty association in connection
with such association’s fund relating to insolvent insurers.
(o) Policy Reserves. The Policy Reserves of MICO recorded in the MICO SAP Statements,
(i) have been computed in all material respects in accordance with generally accepted actuarial
standards in effect on such date and (ii) were in compliance in all material
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respects with the
requirements for Policy Reserves established by the domiciliary insurance regulatory authority of
MICO.
(p) Real Property. Section 3(p) of the MICO Disclosure Schedule lists all real
property leased or subleased and used by MICO (the “Leased Real Property”). MICO has made
available to DGI a copy of the leases and subleases for the Leased Real Property. To the Knowledge
of MICO, except where the invalidity, nonbinding nature, unenforceability, ineffectiveness or
default would not be reasonably expected to have a MICO Material Adverse Effect, each lease and
sublease for the Leased Real Property is valid, binding, enforceable and in full force and effect
in all material respects, and MICO has not received a current written notice of default under any
such lease or sublease.
(q) Intellectual Property.
(i) Section 3(q) of the MICO Disclosure Schedule identifies each patent or registered
Intellectual Property, or application therefor, owned by MICO, and each material written license
agreement (excluding “off the shelf” software license agreements) pursuant to which MICO has
granted to any third party, or has been granted by any third party, any rights in the Intellectual
Property.
(ii) With respect to each item of Intellectual Property identified in Section 3(q) of the MICO
Disclosure Schedule, except as set forth in Section 3(q)(ii) of the MICO Disclosure Schedule, to
the Knowledge of MICO, [a] MICO possess all right, title and interest in and to the item, free and
clear of any Security Interest, license or other restriction; [b] the item is not subject to any
outstanding Order; and [c] no action, suit, proceeding, hearing, investigation, written claim or
written demand is pending or threatened which challenges the legality, validity, enforceability,
use or ownership of the item; except where a failure to comply with the representations in [a], [b]
or [c] would not have a MICO Material Adverse Effect.
(iii) With respect to each material license agreement identified in Section 3(q) of the MICO
Disclosure Schedule, to the Knowledge of MICO, [a] no party to any license agreement is in material
breach or default; and [b] no party to any license agreement has repudiated any material provision
thereof; except where a failure to comply with the representations in [a] or [b] would not have a
MICO Material Adverse Effect.
(r) Contracts. Section 3(r) of the MICO Disclosure Schedule lists the following
written contracts and other written agreements to which MICO is a party:
(i) any agreement required to be filed as exhibits to the MICO SAP Statements;
(ii) any agreement for the lease of personal property to or from any Person providing for
lease payments in excess of $50,000 per annum;
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(iii) any agreement concerning a partnership or joint venture that is material to the
business of MICO, taken as a whole;
(iv) any agreement under which it has created, incurred, assumed or guaranteed any
indebtedness for borrowed money or any capitalized lease obligation, in excess of $100,000 or under
which it has imposed a material Security Interest on any of its material assets, tangible or
intangible;
(v) any agreement which materially restricts the ability of MICO to freely conduct its
business, except for any such contract that may be cancelled without any penalty or other liability
to MICO upon notice of 30 days or less;
(vi) any material agreement with any of the Shareholders or their Affiliates;
(vii) any agreement involving any exchange traded or over the counter swap, forward, future,
option, cap, floor or collar financial contract, or any other interest rate or foreign currency
protection contract;
(viii) any other agreement or group of related agreements the performance of the executory
portion of which involves consideration in excess of $100,000 per annum; or
(ix) any reinsurance agreements as of the date of this Agreement to which MICO is a ceding or
assuming party.
Except as set forth in Section 3(r) of the MICO Disclosure Schedule, to the Knowledge of MICO, with
respect to each such agreement: [a] the agreement is legal, valid, binding, enforceable and in
full force and effect in all material respects, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar Laws relating to or affecting
creditors rights generally and general equitable principles; [b] no party is in breach or default,
and no event has occurred which with notice or lapse of time would constitute a breach or default,
or permit termination, modification, or acceleration, under the agreement and [c] no party has
repudiated any provision of the agreement, except, in each case, where such circumstance or event
would not have a MICO Material Adverse Effect.
(s) Litigation. Except as set forth on Section 3(s) of the MICO Disclosure Schedule,
there is no action, suit, investigation, claim, complaint, demand, summons, subpoena, injunction,
notice of violation or other proceeding pending against or, to the Knowledge of MICO, threatened in
writing against MICO or pending against or threatened in writing against any present or former
officer or director of MICO in connection with which MICO has an indemnification obligation
pursuant to the MICO Organizational Documents or
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a written agreement, before any Governmental Authority other than insurance claims litigation
or arbitration arising in the Ordinary Course of MICO’s Business, which, if determined or resolved
adversely in accordance with the plaintiff’s or claimant’s demands, would, individually or in the
aggregate, reasonably be expected to have a MICO Material Adverse Effect. As of the date of this
Agreement, there is no Order outstanding against MICO which would, individually or in the
aggregate, reasonably be expected to have a MICO Material Adverse Effect or prevent, materially
delay or materially impair the consummation of the transactions this Agreement contemplates.
(t) Employees. MICO is not a party to nor is it bound by any collective bargaining
agreement, nor is it a party to any material arbitration or grievance proceeding relating to any
such collective bargaining agreement. Within the last three years, MICO has not experienced any
work stoppage due to labor disagreements and there is currently no labor strike, dispute, request
for representation, slow down or work stoppage actually pending. MICO is not bound by any
administrative agency, tribunal, commission or board decree relating to any collective bargaining
agreement, claims of unfair labor practices or attempts to organize a collective bargaining unit
which in any case is reasonably expected to have a MICO Material Adverse Effect.
(u) Employee Benefits.
(i) Section 3(u) of the MICO Disclosure Schedule sets forth all of the current Employee
Pension Benefit Plans, Employee Welfare Benefit Plans and all other material employee benefit,
fringe benefit plans and programs maintained or contributed to by MICO with respect to current or
former employees of MICO (the “Plans”). MICO has provided or made available to DGI [a] a copy of
each of the Plans, including all amendments thereto, [b] any trust agreements thereunder, [c] each
summary plan description and [d] the most recent favorable determination letter issued by the
Internal Revenue Service, if applicable.
(ii) Except as set forth in Section 3(u) of the MICO Disclosure Schedule, each Plan is in
compliance with the applicable requirements of Law, including, if applicable, ERISA and the Code,
except where such failure to comply is not reasonably expected to have a MICO Material Adverse
Effect.
(iii) Except as set forth in Section 3(u) of the MICO Disclosure Schedule, each Employee
Pension Benefit Plan which is intended to qualify under Section 401(a) of the Code has received a
favorable determination letter that it is so qualified, and, to the Knowledge of MICO, there exist
no facts or circumstances which would cause any of such favorable determination letters to be
revoked.
(v) Environmental Matters. To the Knowledge of MICO, MICO is in material compliance
with applicable Environmental Laws and Environmental Permits.
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MICO possesses all material Environmental Permits which are required for its operations. During the past three years, MICO has
not received any written communication alleging any
material failure by it to comply with any applicable Environmental Laws or Environmental
Permits. To the Knowledge of MICO, there is no Environmental Claim pending or threatened, against
MICO.
(w) Certain Business Relationships. Except as disclosed in the notes to the Financial
Statements or Section 3(w) of the MICO Disclosure Schedule, neither WBM nor any of its Affiliates
has been involved in any material business arrangement or relationship with MICO within the past 12
months, other than in his, her or its capacity as a director, officer, employee or shareholder of
MICO.
(x) Rating. As of the date of this Agreement, A.M. Best Company has not threatened in
writing to lower or place under surveillance any rating presently assigned to MICO.
(y) State Takeover Laws. MICO has previously taken any and all action necessary to
render the provisions of any Michigan anti-takeover statutes that may be applicable to the Merger
and the other transactions this Agreement contemplates inapplicable to WBM, MICO, DGI and Merger
Sub and their respective affiliates, and to the Merger, and this Agreement and the transactions
this Agreement contemplates.
4. Representations and Warranties of DGI. DGI represents and warrants to MICO and WBM
that the statements contained in this Section 4 are correct and complete as of the date of this
Agreement and shall be correct and complete as of the Closing Date, except as set forth in the
disclosure schedule delivered by DGI on or prior to the execution of this Agreement (the “DGI
Disclosure Schedule”). The DGI Disclosure Schedule shall be arranged in paragraphs corresponding
to the lettered paragraphs contained in this Schedule 4; provided, however, that any event, fact or
circumstance disclosed in any lettered paragraph of the DGI Disclosure Schedule shall be deemed to
be a disclosure for purposes of all other lettered paragraphs of the DGI Disclosure Schedule so
long as it is reasonably apparent that such disclosure applies to such other lettered paragraphs of
the DGI Disclosure Schedule.
(a) Organization of DGI and Merger Sub. DGI is a corporation duly organized, validly
existing, and in good standing under the Laws of the State of Delaware. Merger Sub is a
corporation duly organized and validly existing under the Laws of the State of Delaware. Each of
DGI and Merger Sub has all requisite corporate, partnership or similar powers and all governmental
licenses, authorizations, permits, certificates, registrations, consents, franchises, variances,
exemptions, orders and approvals required to carry on its business as conducted on the date of this
Agreement (the “DGI Permits”). DGI and Merger Sub are in compliance with DGI Permits. DGI is duly
qualified to do business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is required.
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(b) Authorization of Transaction. DGI and Merger Sub, as applicable, each has the
full power and authority to execute and deliver this Agreement and to perform the obligations this
Agreement contemplates. This Agreement constitutes the valid and legally binding obligation of DGI
and Merger Sub, enforceable in accordance against each of them
with its terms and conditions, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar Laws affecting creditors’ rights generally or by
general equitable principles.
(c) Governmental Authorization. The execution, delivery and performance by DGI and
Merger Sub of this Agreement and the consummation by each of DGI and Merger Sub of the transactions
to which it is a party that this Agreement contemplates will not require at or prior to the Closing
any consent or approval by, or filing with, any Governmental Authority, other than (i) the filing
of the Certificates of Merger with the DELEG and the Office of the Secretary and appropriate
documents with the relevant authorities of other states in which DGI and Merger Sub are admitted to
do business, (ii) approvals or filings under Insurance Laws as set forth in Section 4(c) of DGI
Disclosure Schedule (collectively, but excluding any such filings included on Section 4(c) of the
DGI Disclosure Schedule that are required to be made following the consummation of the Merger, the
“DGI Insurance Approvals” and, together with the MICO Insurance Approvals, the “Transaction
Approvals”), (iii) the MICO Insurance Approvals, assuming the accuracy and completeness of Section
3(b), (iv) those consents, approvals or filings as may be required as a result of the business or
identity of MICO or any of its Affiliates and (v) any other consents, approvals or filings the
failure of which to be obtained or made would not, individually or in the aggregate, reasonably be
expected to have a DGI Material Adverse Effect or prevent, materially delay or materially impair
the consummation of the transactions this Agreement contemplates.
(d) Noncontravention. Neither the execution and the delivery of this Agreement, nor
the consummation of the transactions this Agreement contemplates, shall (i) assuming compliance
with the matters referred to in Section 4(c), violate any Law or Order to which DGI or Merger Sub
is subject, (ii) violate any provision of their respective Organizational Documents or (iii)
conflict with, result in a breach of, constitute a default under, result in the acceleration of,
create in any Party the right to accelerate, terminate, modify or cancel, or require any notice
under any agreement, contract, lease, license or instrument to which DGI or Merger Sub is a party
or by which either is bound or to which any of their respective assets is subject, except where the
violation, conflict, breach, default, acceleration, termination, modification, cancellation or
failure to give notice would not have a material adverse effect on the ability of DGI or Merger Sub
to consummate the transactions this Agreement contemplates, except for such violations, breaches or
conflicts in clauses (i) and (iii) that would not, individually or in the aggregate, reasonably be
expected to have a DGI Material Adverse Effect.
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(e) Capitalization; Interim Operations of Merger Sub. The authorized capital stock of
Merger Sub consists solely of 1,000 shares of common stock, $1.00 par value per share, all of which
are issued and outstanding. DGI owns all of the issued and outstanding shares of capital stock of
Merger Sub. All of the issued and outstanding shares of capital stock of Merger Sub have been duly
authorized and validly issued and are fully paid and nonassessable and free and clear of preemptive
or other similar rights, and were not
issued in violation of the Organizational Documents of Merger Sub. Merger Sub was formed
solely for the purposes of engaging in the transactions this Agreement contemplates and other than
in connection with the transactions this Agreement contemplates has not conducted any business
prior to the date of this Agreement and has, and prior to the Effective Date will have, no assets,
liabilities or obligations of any nature other than those incident to its formation or as this
Agreement contemplates.
(f) Brokers’ Fees. Neither DGI nor Merger Sub has any liability or obligation to pay
any fees or commissions to any broker, finder, investment banker or agent with respect to the
transactions this Agreement contemplates for which MICO, WBM or any Shareholder could become liable
or obligated.
(g) Availability of Funds. DGI has and will have at the Closing sufficient cash
available, or irrevocable commitments from financial institutions, to enable DGI to pay the full
consideration payable to the Shareholders hereunder, to make all other necessary payments by it in
connection with the transactions this Agreement contemplates.
(h) Litigation. There is no action, suit, investigation, claim, complaint, demand,
summons, cease and desist letter, subpoena, injunction, notice of violation or other proceeding
pending against, or, to the knowledge of DGI, threatened in writing against DGI or any of its
Subsidiaries before any Governmental Authority, (other than insurance claims litigation or
arbitration arising in the ordinary course of DGI’s Business consistent with past custom and
practice), that, if determined or resolved adversely in accordance with the plaintiff’s demands,
would reasonably be expected to prevent, materially delay or materially impair the consummation of
the transactions this Agreement contemplates. As of the date of this Agreement, there is no Order
outstanding against DGI or any of its Subsidiaries which would reasonably be expected to prevent,
materially delay or materially impair the consummation of the transactions this Agreement
contemplates.
(i) Interested Shareholder. At the time immediately preceding the date of this
Agreement, neither DGI nor any of its Affiliates is, with respect to MICO, an “interested
shareholder” as such term is defined in Section 778 of the MBCA and or Section 203 of the DGCL.
(j) Compliance with Laws.
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(i) Since January 1, 2008, the business and operations of DGI and the Merger Sub have been
conducted in compliance with all applicable Laws (including Insurance Laws), except where the
failure to so conduct such business and operations would not, individually or in the aggregate,
reasonably be expected to have a DGI Material Adverse Effect.
(ii) All of the DGI Permits regarding conducting insurance operations are in full force and
effect in accordance with their terms and there is no proceeding or investigation to which DGI or
any such Subsidiary is subject before a Governmental
Authority that is pending or threatened in writing that would reasonably be expected to result
in the revocation, failure to renew or suspension of, or placement of a restriction on, any such
DGI Permits, except where the failure to be in full force and effect in accordance with their
terms, revocation, failure to renew, suspension or restriction would not, individually or in the
aggregate, reasonably be expected to have a DGI Material Adverse Effect.
(iii) There is no proceeding to which DGI or any Subsidiary is subject before any Governmental
Authority pending or threatened in writing regarding whether any of DGI or its Subsidiaries has
violated any applicable Insurance Laws, nor any investigation by any Governmental Authority pending
or threatened in writing with respect to possible violations of, any applicable Insurance Laws,
except for proceedings or investigations relating to violations or possible violations which would
not individually or in the aggregate, reasonably be expected to have a DGI Material Adverse Effect.
Since January 1, 2008, DGI and its Subsidiaries have filed all material reports required to be
filed by any of them with their respective domiciliary state insurance department or such failure
to file has been remedied. Except as required by applicable Law and the DGI Permits maintained by
DGI or its Subsidiaries, there are no written agreements, memoranda of understanding, commitment
letters or similar undertakings binding on DGI or its Subsidiaries to which DGI or any Subsidiary
is a party, on the one hand, and any Governmental Authority is a party or addressee, on the other
hand, or Orders specifically with respect to DGI or any Subsidiary, that [a] limit in any material
respect the ability of any of DGI or its Subsidiaries to issue insurance policies under the DGI
Permits, [b] impose any requirements on DGI or any of its Subsidiaries in respect of risk based
capital requirements that materially increase or modify the risk based capital requirements imposed
under applicable Insurance Laws, [c] relate to the ability of any of DGI or any of its Subsidiaries
to pay dividends or [d] restrict in any material respect the conduct of business of DGI or any of
its Subsidiaries.
(k) Due Diligence. DGI and the Merger Sub further acknowledge and agree that (i) they
have conducted such investigations of MICO and its business as they deem necessary in connection
with the execution of this Agreement and the consummation of the transactions this Agreement
contemplates (ii) they and their representatives have been permitted access to the records,
facilities, equipment, Tax Returns, contracts and other
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properties and assets of MICO which they
and their representatives have desired and requested to see or review and (iii) they and their
representatives have had the opportunity to meet with representatives of MICO to discuss the
business and the assets of MICO.
5. Pre-Closing Covenants. WBM, MICO, DGI and Merger Sub agree as follows with respect
to the period between the execution of this Agreement and the Closing.
(a) General.
(i) Subject to the terms of this Agreement, each of WBM, MICO, DGI and Merger Sub shall use
commercially reasonable efforts to take all actions and to do all things necessary, proper or
advisable in order to consummate and make effective the Merger
and the other transactions this Agreement contemplates, including satisfaction, but not
waiver, of the closing conditions set forth in Section 8. In furtherance and not in limitation of
the foregoing, each of the Parties agrees to make, as promptly as practicable after the date of
this Agreement, [a] appropriate filings required by the Transaction Approvals and [b] all other
necessary filings with any other Governmental Authorities with respect to the transactions this
Agreement contemplates. In addition, the Parties agree to cooperate and coordinate the filings
required in connection with the Transaction Approvals with each other.
(ii) If any objections are asserted with respect to the transactions this Agreement
contemplates under any applicable Law or if any suit is initiated by any Governmental Authority or
any private party challenging any of the transactions this Agreement contemplates as violative of
any applicable Law, each Party shall use its commercially reasonable efforts to resolve any such
objections or challenges as such Governmental Authority or private party may have to such
transactions under such applicable Law, including responding to any request for information from
any such Governmental Authority and complying with any requirements or conditions imposed by any
such Governmental Authority so as to permit consummation of the transactions this Agreement
contemplates on the terms set forth in this Agreement and without the imposition of any material
restrictions on the operations of MICO for the future.
(b) Notices and Consents. MICO shall use commercially reasonable efforts to obtain
any third party consents that are required to be obtained in connection with the consummation of
the transactions this Agreement contemplates. Each of WBM, MICO, DGI and Merger Sub shall give any
notices to, make any filings with, and use commercially reasonable efforts to obtain any
authorizations, consents and approvals of any Governmental Authorities which are required to be
given, made or obtained in connection with consummation of the transactions this Agreement
contemplates, including any Transaction Approvals. Each of WBM, MICO, DGI and Merger Sub shall
bear its own costs and expenses in preparing such filings.
(c) Operation of Business by MICO.
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(i) From the date of this Agreement until the earlier of the Effective Date and the date, if
any, on which this Agreement is earlier terminated pursuant to Section 9(a)(i), except [a] for
payments MICO makes in accordance with the Surplus Note, [b] as prohibited or required by
applicable Law or by any Governmental Authority, [c] as set forth in Section 5(c) of the MICO
Disclosure Schedule or [d] as otherwise contemplated, required or permitted by this Agreement,
unless DGI shall otherwise consent, which consent DGI shall not unreasonably withhold, condition or
delay, MICO shall conduct its business in the ordinary course consistent with past practice in all
material respects and, to the extent consistent therewith, use its commercially reasonable efforts
to preserve intact in all material respects its business organization and goodwill and relationship
with brokers, including its currently in force reinsurance agreements, and other intermediaries,
customers, Governmental Authorities and others with which it has material business dealings.
(ii) In addition to and without limiting the generality of the foregoing, from the date of
this Agreement until the earlier of the Effective Date and the date, if any, on which this
Agreement is earlier terminated pursuant to Section 9(a)(i), except [x] as prohibited or required
by applicable Law or by any Governmental Authority, [y] as set forth in Section 5(c) of the MICO
Disclosure Schedule or [z] as otherwise contemplated, required or permitted by this Agreement,
unless DGI shall otherwise consent, which consent shall not be unreasonably withheld, conditioned
or delayed, MICO shall not directly or indirectly:
(A) amend or propose or agree to amend, in any material respect, any of its Organization
Documents;
(B) [i] declare, set aside, make or pay any dividend or other distribution, whether in cash,
stock or property, in respect of any of its capital stock, [ii] adjust, split, combine or
reclassify any of its capital stock or issue or propose or authorize the issuance of any other
securities, including options, warrants or any similar security exercisable for, or convertible
into, such other security, in respect of, in lieu of, or in substitution for, Shares or [iii]
repurchase, redeem or otherwise acquire any Shares of its Common Stock, or any other equity
interests or any rights, warrants or options to acquire any such shares or interests, except for
repurchases of Shares in connection with the Shareholder Agreements;
(C) issue, sell, grant, pledge, amend, grant any rights in respect of or otherwise encumber
any Shares of its Common Stock or other securities, including any options, warrants or any similar
security exercisable for, or convertible into, such capital stock or similar security, or make any
changes, by combination, merger, consolidation, reorganization, liquidation or otherwise, in the
capital structure of MICO, except for the issuance of Shares pursuant to contracts in effect prior
to the execution and delivery of this Agreement and made available to DGI;
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(D) merge or consolidate with any other Person or acquire any material assets or make a
material investment in, whether through the acquisition of stock, assets or otherwise, any other
Person, except for [i] acquisitions of inventory, equipment and software in the Ordinary Course of
MICO’s Business or [ii] investment portfolio transactions in the Ordinary Course of MICO’s
Business in accordance with MICO’s existing investment guidelines;
(E) sell, lease, license, subject to a material Security Interest, except for a Permitted
Lien, or otherwise dispose of any material assets, product lines or businesses of MICO except [i]
pursuant to contracts in effect prior to the execution and delivery of this Agreement and made
available to DGI and renewals thereof in the Ordinary Course of MICO’s Business, [ii] investment
portfolio transactions in the Ordinary Course of MICO’s Business in accordance with MICO’s existing
investment guidelines or [iii] sales, leases or licenses of inventory, equipment, software and
other assets in the Ordinary Course of MICO’s Business;
(F) [i] make any loans, advances or capital contributions to any other Person, except for
investment portfolio transactions in the Ordinary Course of MICO’s Business in accordance with
MICO’s existing investment guidelines; [ii] create, incur, guarantee or assume any indebtedness,
except for (A) indebtedness for borrowed money incurred to replace, renew, extend, refinance or
refund any existing indebtedness on materially no less favorable terms, (B) guarantees by MICO of
indebtedness for borrowed money or (C) indebtedness for borrowed money in each case incurred
pursuant to agreements in effect prior to the execution and delivery of this Agreement and made
available to DGI; [iii] make or commit to make any capital expenditure in excess of $100,000 in the
aggregate during any 12-month period other than capital expenditures set forth in MICO’s capital
budget for fiscal year 2010, which 2010 capital budget is attached hereto as Appendix B or [iv]
cancel any material debts of any Person to MICO or waive any claims or rights of material value,
except for cancellations or waivers in the Ordinary Course of MICO’s Business;
(G) except as required by contracts in effect prior to the execution and delivery of this
Agreement or the Plans, [i] increase the compensation or other benefits payable or provided to
MICO’s directors or employees; [ii] except in the Ordinary Course of MICO’s Business, materially
increase the compensation or other benefits payable or provided to MICO’s employees, except the
Ordinary Course of MICO’s Business including, for this purpose, the employee salary and short and
long term incentive compensation review process and related adjustments substantially as conducted
each year, provided that MICO may make cash incentive grants to new hires in a value substantially
equivalent to the value of equity awards historically granted to new hires in the Ordinary Course
of MICO’s Business; [iii] enter into any employment, change of control, severance or retention
agreement with any employee of MICO, except (A) any such agreement set forth in the
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MICO Disclosure
Schedule, (B) for renewals or replacements of existing employment agreements with current employees
upon expiration of the term of the applicable agreement on substantially the same terms as the
previous agreement or (C) separation agreements entered into with employees in the Ordinary Course
of MICO’s Business in connection with terminations of employment; provided, that MICO shall not
enter into any separation agreement or arrangement without obtaining a general release of claims
from the applicable employee or [iv] except as permitted pursuant to clause [iii], establish,
adopt, enter into or amend any collective bargaining agreement, plan, trust, fund, policy or
arrangement for the benefit of any current or former directors, officers or employees or any of
their beneficiaries, except as would not result in a material increase in cost to MICO or as is
required (A) to comply with Section 409A of the Code or (B) by the terms of such agreement, plan,
trust, fund, policy or arrangement;
(H) [i] settle or compromise any material claim, audit, arbitration, suit, investigation,
complaint or other proceeding in excess of the amount of the corresponding reserve established on
the Most Recent Balance Sheet plus any applicable third party insurance proceeds, except (A) as
required by any contract in effect prior to the execution and delivery of this Agreement, (B) for
any settlements or compromises of
insurance claims or litigation or arbitration arising in the Ordinary Course of MICO’s
Business or (C) for any settlements or compromises involving total aggregate payments not in excess
of $250,000, it being understood that this subsection (C) shall be in addition to and not in
limitation of subsections (A) and (B), or [ii] enter into any consent decree, injunction or similar
restraint or form of equitable relief in settlement of any material claim or audit that would
materially restrict the operations of the business of MICO after the Effective Date;
(I) except in the Ordinary Course of MICO’s Business, [i] modify or amend in any materially
adverse respect or terminate any material contract, [ii] enter into any successor agreement to an
expiring material contract that changes the terms of the expiring material contract in a way that
is materially adverse to MICO or [iii] enter into any new agreement that would have been set forth
on Section 3(r) of the MICO Disclosure Schedule if it were entered into at or prior to the date
hereof;
(J) terminate, cancel, amend or modify any insurance policies or reinsurance contracts
maintained by it covering MICO as an insured or reinsured which is not replaced by a comparable
amount of insurance or reinsurance coverage at a substantially similar cost;
(K) other than a renewal transaction with any reinsurer upon the expiration of any current
reinsurance agreement, enter into any new reinsurance transaction as assuming or ceding insurer,
which does not contain arms’ length cancellation, termination and commutation provisions; provided,
however, with respect to renewal transactions with reinsurers for current reinsurance agreements,
MICO shall use
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commercially reasonable efforts to negotiate commercially reasonable cancellation,
termination and commutation provisions;
(L) alter or amend in any material respect any existing underwriting, claim handling, loss
control, investment, actuarial, financial reporting or accounting practices, guidelines or
policies, including compliance policies, or any material assumption underlying an actuarial
practice or policy, except as may be required by (or, in the reasonable good faith judgment of
MICO, advisable under) GAAP or SAP;
(M) except in the Ordinary Course of MICO’s Business [i] make or rescind any Tax election,
[ii] settle or compromise any claim related to Taxes or [iii] enter into a written and legally
binding agreement with a Governmental Authority relating to Taxes;
(N) [i] make a request for a written ruling of a Taxing Authority relating to Taxes or [ii]
change any of its methods of reporting income or deductions, including changes in methods of
accounting, for federal income Tax purposes from those employed in the preparation of its federal
income Tax Returns for the taxable year ended December 31, 2009;
(O) enter into or renew or extend any agreements or arrangements that materially limit or
otherwise materially restrict MICO or any of its respective Affiliates or any successor thereto, or
that would, after the Effective Date, materially limit or materially restrict DGI or any of its
Affiliates, including the Surviving Corporation, or any successor thereto, from engaging or
competing in any line of business or in any material geographic area;
(P) adopt a plan of complete or partial liquidation, dissolution, restructuring,
recapitalization or other reorganization of MICO; or
(Q) authorize any of, or commit, resolve, propose or agree to take any of, the foregoing
actions.
(d) Access to Books and Records. MICO shall permit representatives of DGI to have
reasonable access at reasonable times, and in a manner so as not to interfere unreasonably with the
normal business operations of MICO, to the premises, properties, personnel, books, records,
including Tax records but not including employee files or medical records, contracts and documents
of or pertaining to MICO; provided, however, that all such access shall be approved by a Person WBM
designates. DGI reaffirms its obligations under the confidentiality agreement between DGI and MICO
previously executed and delivered in connection with this transaction (the “Confidentiality
Agreement”).
(e) Notice of Developments.
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(i) Each Party shall give prompt written notice to the other Party of any development causing
or reasonably expected to result in a breach of any of its own representations and warranties in
Section 3 and Section 4, as applicable. Unless the non-breaching Party has the right to terminate
this Agreement pursuant to Section 9(a)(iii) or Section 9(a)(iv), as applicable, by reason of such
development and exercises that right, the written notice pursuant to this Section 5(e) shall be
deemed to have amended the MICO Disclosure Schedule, as applicable, to have qualified the
representations and warranties contained in Section 3 or 4, as applicable, and to have cured any
misrepresentation or breach of warranty that otherwise might have existed hereunder by reason of
such development.
(ii) Prior to the Closing, DGI shall promptly notify MICO if DGI obtains knowledge that any
representation or warranty contained in Section 3 of this Agreement or in the MICO Disclosure
Schedule is not true and correct in all material respects, or if DGI obtains knowledge of any
material errors in, or omissions from, the MICO Disclosure Schedule.
(f) Disclaimer Regarding Estimates and Projections. In connection with DGI’s
investigation of MICO, DGI and Merger Sub have received from MICO and/or Xxxxx, Xxxxxxxx & Xxxxx,
Inc. certain estimates, forecasts, plans and financial projections of MICO. DGI and Merger Sub
acknowledge that there are uncertainties inherent in attempting to make such estimates, forecasts,
plans and projections, that DGI is familiar with such
uncertainties, that DGI and Merger Sub are taking full responsibility for making its own
evaluation of the adequacy and accuracy of all estimates, forecasts, plans and projections so
furnished to it, including the reasonableness of the assumptions underlying such estimates,
forecasts, plans and projections, and that neither DGI nor Merger Sub shall have any claim against
the Shareholders, WBM and/or Xxxxx, Xxxxxxxx & Xxxxx, Inc. with respect thereto. Accordingly, none
of the Shareholders, WBM, MICO or Xxxxx, Xxxxxxxx & Xxxxx, Inc., make any representation or
warranty with respect to such estimates, forecasts, plans and projections, including any such
underlying assumptions.
(g) Special Meeting. As promptly as practicable after the execution and delivery of
this Agreement and obtaining the Transaction Approvals, MICO, acting through its Board of
Directors, shall, in accordance with applicable Law, take all actions required to duly call, give
notice of, convene and hold a special meeting of the Shareholders, including any postponement or
adjournment thereof, for the purpose of obtaining the Requisite Shareholder Vote (the “Special
Meeting”). MICO shall use commercially reasonable efforts to obtain the necessary adoption of this
Agreement and approval of the Merger by the Shareholders, the Board of Directors of MICO shall
recommend that the Shareholders vote in favor of the adoption of this Agreement and approval of the
Merger at the Special Meeting, and MICO agrees that it shall include in any proxy statement or
similar documentation provided to the Shareholders in connection with the Special Meeting the
recommendation of the Board of Directors of MICO that the Shareholders adopt this Agreement.
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(h) No Solicitation. MICO agrees that it shall, and shall cause its directors,
officers and employees to, and shall use its reasonable best efforts to cause its other
representatives to, (i) immediately cease and cause to be terminated all existing discussions or
negotiations with any Person conducted heretofore with respect to any submission of proposals or
offers from Persons relating the acquisition or purchase of all or any portion of the Shares or the
assets of MICO (other than in the Ordinary Course of MICO’s Business), or any equity interest in
MICO, or any business combination with MICO, other than with DGI or Merger Sub, (ii) not
participate in any negotiations regarding or furnish to any other Person any information with
respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or
encourage, any effort or attempt by any other Person to seek or do any of the foregoing.
(i) Reserves. Between the date of this Agreement and the Closing Date, MICO shall
not:
(i) make any reduction in any loss expense reserve or incurred but not reported loss reserve
not consistent with the levels, procedures or methods MICO employs in the setting or change of such
reserves as agreed by DGI and MICO;
(ii) make any change in the levels, procedures or methods it employs in the setting or
changing of case basis loss reserves;
(iii) make any reduction in net case basis loss reserves not consistent with the levels,
procedures or methods MICO employs in the setting or changing of case basis loss reserves as agreed
by DGI and MICO, and, in any event, within 10 days following any reduction in MICO’s net case basis
loss reserves in excess of $75,000, except for any reduction that occurs because MICO has made a
claims payment or because MICO has settled the claim and closed the case, MICO shall provide DGI
with a written explanation of any such reduction in reasonable detail and certified as true and
correct by the Manager of claims; or
(iv) make any reduction in its guaranty fund accruals, except as required by GAAP or SAP.
(j) Suspension of Dividends. As of the date of this Agreement, WBM agrees to suspend
the payment of any dividends or other distributions to WBM, unless, in each case, (i) DGI consents
to the payment of such dividend or other distribution prior to the payment thereof and (b) the
Merger Consideration payable by DGI to WBM is reduced by the amount of all such dividends and other
distributions.
6. Post-Closing Covenants. WBM, MICO, DGI and Merger Sub agree as follows with
respect to the period following the Effective Date.
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(a) General. In the event that at any time after the Effective Date any further
action is necessary to carry out the purposes of this Agreement, each of WBM, MICO, DGI and Merger
Sub shall take such further action, including the execution and delivery of such further
instruments and documents, as the other Party may reasonably request, all at the sole cost and
expense of the requesting Party. DGI agrees to retain records relating to MICO for the period
prior to the Effective Date and make them available to WBM for a period of five years after the
Effective Date, or, in the alternative, to notify WBM in writing at least 30 days prior to of their
disposal at any time prior to the expiration of such period and permit WBM to have access to such
records.
(b) Litigation Support. In the event and for so long as any party to this Agreement
actively is contesting or defending against any action, suit, proceeding, hearing, investigation,
complaint, claim, or demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior to the Effective
Date involving MICO, each of the other parties shall cooperate with each other party or its counsel
in the defense or contest, make available their personnel, and provide such testimony and access to
their books and records as shall be reasonably requested in connection with the defense or contest,
all at the sole cost and expense of the contesting or defending party.
(c) Transition. Neither the Shareholders, WBM nor MICO shall take any action that is
designed or intended to have the effect of discouraging any lessor, licensor, customer, agent or
other business associate of MICO from maintaining the same business
relationships with DGI and MICO after the Closing as it maintained with MICO and WBM prior to
the Closing.
(d) Tax Matters.
(i) WBM shall prepare or cause to be prepared, and file or cause to be filed, all Income Tax
Returns of MICO with respect to periods ending on or before the Effective Date and all other Tax
Returns of MICO that are due on or before the Effective Date and shall pay all taxes such Income
Tax Returns reflect as payable in excess of those amounts reflected on the Final Closing Balance
Sheet. DGI shall prepare or cause to be prepared, and file or cause to be filed, all other Tax
Returns required to be filed by the Surviving Corporation after the Effective Date; provided that
any Tax Return with respect to any taxable period that includes, but does not end on, the Effective
Date (a “Straddle Period”) shall be prepared consistently with prior practice unless otherwise
required by applicable Tax Law and shall be provided by DGI to WBM for review and approval at least
20 days before due, including extensions.
(ii) From and after the Effective Date, WBM and DGI shall give prompt notice to each other of
any Tax authority’s proposed adjustment to Taxes of MICO for
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any Tax period ending on or prior to
the Effective Date or any Straddle Period. WBM shall have the right to represent and control the
interests of MICO in any Tax audit or administrative or court proceeding relating to taxable
periods of MICO which end on or before the Effective Date and to employ counsel of its choice at
the Shareholders’ expense; provided, however, that DGI shall have the right to participate in, and
consult with WBM regarding, any such contest that may affect MICO or the Surviving Corporation for
any periods ending after the Effective Date at DGI’s own expense. DGI shall control the conduct of
any audit or proceeding involving MICO or the Surviving Corporation for periods that end after the
Effective Date, including any Straddle Period. DGI shall keep WBM reasonably informed of the
progress of any such audit or other proceeding, and WBM shall cooperate with DGI and the Surviving
Corporation in the conduct of any such audit or other proceeding. Notwithstanding anything in this
Agreement to the contrary, DGI and the Surviving Corporation shall not resolve, settle, compromise,
or abandon any issue or claim without the prior written consent of WBM, on behalf of the
Shareholders, if such action would affect the Tax liabilities of any of MICO or the Shareholders
for any period ending before the Effective Date or the pre-Closing portion of any Straddle Period,
including any imposition of any income Tax deficiencies.
(iii) Neither DGI nor the Surviving Corporation may amend or cause the amendment of a Tax
Return of MICO, change an annual accounting period, adopt or change any accounting method, or file
or amend any Tax election concerning MICO with respect to any period ending on or prior to the
Closing Date without the written consent of WBM. The Surviving Corporation shall, and DGI shall
cause the Surviving Corporation to comply, upon request by WBM, cooperate in the preparation of and
submission to the proper Tax authority of any amended Tax Return with respect to MICO for any
taxable period ending on or before the Effective Date.
(iv) Any refund of Taxes of MICO, including any interest with respect thereto, attributable,
or treated as attributable, to any period that occurs on or before the Effective Date, including
the pre-Closing portion of a Straddle Period, shall be the property of the Shareholders, and if DGI
or MICO receives such a refund, DGI shall promptly pay such refund to WBM.
(v) Any payment of Taxes of MICO in excess of those amounts reflected on the Final Closing
Balance Sheet, including any interest with respect thereto, attributable or treated as
attributable, to any period that occurs on or before the Effective Date, shall be the liability of
the Shareholders, and, if any Tax is ultimately determined to be due and payable, WBM shall be
solely responsible for the payment of such Tax and shall hold DGI harmless against amounts in
excess of those amounts reflected on the Final Closing Balance Sheet, subject to the limitations
set forth in Section 10(b) of this Agreement.
(vi) DGI, MICO, the Shareholders and the Surviving Corporation, as applicable, shall
reasonably cooperate, as and to the extent reasonably requested by any such
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Party, in connection with the furnishing of information relating to and the filing of Tax
Returns of MICO and the Surviving Corporation and any audit, litigation or other proceeding with
respect to Taxes of MICO or the Surviving Corporation. Such cooperation shall include signing any
Tax Return, amended Tax Returns, claims or other documents necessary to settle any Tax controversy,
the retention and, upon the other Party’s request, the provision of records and information which
are reasonably relevant to any such audit, litigation or other proceeding and making employees
available on a mutually convenient basis to provide additional information and explanation of any
material provided hereunder. DGI, MICO, the Shareholders and the Surviving Corporation agree to
retain all books and records with respect to Tax matters pertinent to MICO relating to any taxable
period beginning before the Effective Date until the expiration of the statute of limitations of
the respective taxable periods, and to abide by all record retention agreements entered into with
any taxing authority.
(vii) On the Closing Date but effective as of the Effective Date, MICO and WBM shall
terminate the Intercompany Tax Allocation Agreement between MICO and WBM dated February 12, 1997
(the “Tax Allocation Agreement”); provided that such termination shall apply only with respect to
activity of MICO after the Closing and shall not affect MICO’s obligations under the Tax Allocation
Agreement with respect to any period or portion of thereof occurring before the Effective Date. As
soon as practicable, but not later than 60 days after the Closing, WBM shall prepare and deliver to
DGI a statement (the “Tax Statement”) providing for the final unpaid obligation of MICO through the
Closing Date under the Tax Allocation Agreement (the “Final Tax Allocation Obligation”) of MICO.
DGI shall pay to WBM, by wire transfer, the amount of the Final Tax Allocation Obligation within 30
Business Days after WBM has delivered such Tax Statement to DGI.
(e) Directors’ and Officers’ Indemnification and Insurance.
(i) From and after the Effective Date, DGI shall cause the Surviving Corporation to, to
the fullest extent permitted by Law, including to the fullest extent authorized or permitted by any
amendments to or replacements of the MBCA and the DGCL adopted after the date of this Agreement
that increase the extent to which a corporation may indemnify its officers and directors, indemnify
and hold harmless and advance expenses for, provided the Person to whom expenses are advanced
provides a reasonable and customary undertaking which shall not include posting of any collateral
to repay such advances if it is ultimately determined that such Person is not entitled to
indemnification, the present and former directors and officers of MICO or any fiduciaries under any
Plan (each a “MICO Indemnified Party”) against any and all costs or expenses, including reasonable
attorneys’ fees and expenses, judgments, fines, losses, claims, damages, penalties, liabilities and
amounts paid in settlement in connection with any actual or threatened claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative, regulatory or investigative,
arising out of, relating to or in connection with any circumstances,
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developments or matters in existence, or acts or omissions occurring or alleged to occur prior
to or at the Effective Date, excluding the approval of this Agreement or the transactions this
Agreement contemplates or arising out of or pertaining to the transactions this Agreement
contemplates, whether asserted or claimed prior to, at or after the Effective Date.
(ii) From and after the Effective Date, DGI shall cause the Surviving Corporation to, to
the fullest extent permitted by law, including to the fullest extent authorized or permitted by any
amendments to or replacements to the MBCA and the DGCL adopted after the date of this Agreement
that increase the extent to which a corporation may indemnify its directors and officers, indemnify
and hold harmless and advance expenses for, provided the Person to whom the Surviving Corporation
advances expenses, provides a reasonable and customary undertaking which shall not include the
posting of any collateral to repay such advances if it is ultimately determined that such Person is
not entitled to indemnification, the present and former directors and officers of MICO that are not
also directors or officers of WBM or any fiduciaries under any Plan against any and all costs or
expenses, including reasonable attorneys’ fees and expenses, judgments, fines, losses, claims,
damages, penalties, liabilities and amounts paid in settlement in connection with any actual or
threatened claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative, regulatory or investigative, arising out of, relating to or in connection with the
approval of this Agreement or the transactions this Agreement contemplates or arising out of or
pertaining to the transactions this Agreement contemplates, whether asserted or claimed prior to,
at or after the Effective Date.
(iii) The Surviving Corporation shall, and DGI shall cause the Surviving Corporation to,
at no expense to the beneficiaries:
(A) Upon 30 days’ notice from WBM that WBM is no longer providing directors’ and officers’
liability insurance and fiduciary insurance to the MICO Indemnified Parties, the Surviving
Corporation shall provide the MICO Indemnified Parties with directors’ and officers’ liability and
fiduciary insurance no less favorable to the MICO Indemnified Parties as MICO’s currently existing
directors’ and officers’ liability and fiduciary insurance (the “Current Insurance”) with respect
to matters existing or occurring at or prior to the Effective Date, including the transactions this
Agreement contemplates. Notwithstanding the foregoing, in no event shall DGI or the Surviving
Corporation be required to expend for any such policies contemplated by this Section 6(e)(iii) an
annual premium amount in excess of 175% of the annual premiums currently paid by MICO for such
insurance; provided further that if the annual premiums of such insurance coverage exceed such
amount, DGI or the Surviving Corporation shall obtain a policy with the greatest coverage available
for a cost not exceeding such amount.
(B) The Organizational Documents of the Surviving Corporation shall include provisions for
indemnification, advancement of expenses and exculpation of the MICO Indemnified Parties on terms
and conditions that are substantially
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equivalent as those set forth in the Organizational Documents of MICO in effect on the date of
this Agreement. Following the Effective Date, the Surviving Corporation shall, and DGI shall cause
the Surviving Corporation to, maintain in effect the provisions in the MICO Organizational
Documents providing for indemnification, advancement of expenses and exculpation of MICO
Indemnified Parties, as applicable, with respect to the facts or circumstances occurring at or
prior to the Effective Date, to the fullest extent permitted from time to time under applicable
Law, which provisions shall not be amended except as required by applicable Law or except to make
changes permitted by applicable Law that would enlarge the scope of the MICO Indemnified Parties’
indemnification rights thereunder.
(C) If DGI or the Surviving Corporation or any of their respective successors or assigns
[a] consolidates with or merges into any other Person and is not the continuing or surviving
corporation or entity of such consolidation or merger or [b] transfers all or substantially all of
its properties and assets to any Person, then, and in each such case, DGI shall cause proper
provisions to be made prior to the consummation of any transaction of the type described in clause
[a] or clause [b] of this sentence so that the successors and assigns of DGI or the Surviving
Corporation, as the case may be, shall assume all of the obligations set forth in this Section
6(e).
(D) This Section 6(e) is intended for the irrevocable benefit of, and to grant third party
rights to, the MICO Indemnified Parties and shall be binding on all successors and assigns of DGI
and the Surviving Corporation. Each MICO Indemnified Party shall be a third party beneficiary of
this Section 6(e), and entitled to enforce the covenants contained in this Section 6(e). If any
MICO Indemnified Party makes any claim for indemnification or advancement of expenses under this
Section 6(e) that is denied by DGI and/or the Surviving Corporation, and a court of competent
jurisdiction determines that the MICO Indemnified Party is entitled to such indemnification, then
DGI or the Surviving Corporation shall pay such MICO Indemnified Party’s costs and expenses,
including reasonable legal fees and expenses, incurred in connection with pursuing such claim
against DGI and/or the Surviving Corporation. The rights of the MICO Indemnified Parties under
this Section 6(e) shall be in addition to any rights such MICO Indemnified Parties may have under
the Organizational Documents of MICO, the Organizational Documents of the Surviving Corporation or
under any applicable contracts, insurance policies or Laws.
(f) Employee Matters.
(i) Until the six-month anniversary of the Effective Date (the “Benefits Continuation
Period”), the Surviving Corporation shall provide, or cause to be provided, for those employees of
MICO who continue as employees of the Surviving Corporation during all or a portion of the Benefits
Continuation Period (the “Continuing Employees”), compensation, including base salary, bonus and
other cash based incentive compensation and the value of equity based incentive compensation, and
employee benefits that in the aggregate, with any bonus or other incentive compensation measured at
target for
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this purpose, but excluding the full amount of any retention bonuses WBM or MICO have agreed
to pay to any of MICO’s executive officers in connection with the transactions this Agreement
contemplates, shall not be any less favorable than the compensation and employee benefits provided
by MICO to the Continuing Employees immediately prior to the date of this Agreement.
Notwithstanding the foregoing, at and following the Effective Date, the Surviving Corporation shall
continue to honor, and shall continue to discharge its contractual obligations under, the following
MICO employee benefit plans as in effect on the date of this Agreement (in accordance with any
modifications or amendments described below):
(A) the MICO 2009 Long-Term Incentive Plans which provide for the payment of benefits
through 2011; and
(B) the MICO 2010 Long-Term Incentive Plans which provide for the payment of benefits
through 2012, subject to the condition that the 2010 Plans would terminate effective December 31,
2010, the maximum payout under the 2010 Plans would be one-third of the incentive amount for the
2010 Plan year results and any incentive compensation earned under the 2010 Plans would be paid in
the first quarter of 2011.
Nothing herein shall be deemed to be a guarantee of employment for any current or former
employee of MICO, or other than as provided in any applicable employment agreement or other
contract, to restrict the right of DGI or the Surviving Corporation to terminate any such employee
or to give any person any right to any specific terms or conditions of employment.
(ii) DGI shall [a] waive any applicable pre-existing condition exclusions and waiting
periods with respect to participation and coverage requirements in any replacement or successor
welfare benefit plan of the Surviving Corporation, except for the short and long term disability
benefit plans of the Surviving Corporation or any of its Affiliates, which Plans, however, will
recognize prior service for purposes of meeting the time requirements in those Plans’ preexisting
condition exclusions; provided, however, any such preexisting condition exclusion shall not apply
to preclude a Continuing Employee who had previously received disability benefits under the MICO
disability plan prior to the Effective Date from receiving coverage for the same condition, as
determined using the same criteria as the MICO disability plan, following the Effective Date, that
a Continuing Employee is eligible to participate in following the Effective Date to the extent such
exclusions or waiting periods were inapplicable to, or had been satisfied by, such Continuing
Employee immediately prior to the Effective Date under the analogous MICO Benefit Plan in which
such Continuing Employee participated, [b] provide each Continuing Employee with credit for any
co-payments and deductibles paid prior to the Effective Date, to the same extent such credit was
given under the analogous MICO Benefit Plan prior to the Effective Date, in satisfying any
applicable deductible or out of pocket requirements, and [c] recognize service prior to the
Effective Date with MICO for purposes of eligibility to participate and
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vesting and level of benefits, but not for purposes of benefits accrual under any defined
benefit pension plan or levels of benefits or entitlement to eligibility or coverage under any post
retirement medical plan, to the same extent such service was recognized by MICO under the analogous
MICO Benefit Plan in which such Continuing Employee participated immediately prior to the Effective
Date; provided that the foregoing shall not apply to the extent it would result in any duplication
of benefits for the same period of service.
(iii) DGI shall cause each such plan to (A) waive any pre-existing conditions limitations
to the extent such conditions are covered under the applicable medical, dental or health plan of
DGI and (B) waive any waiting period limitation or evidence of insurability that would otherwise be
applicable to such employee or dependent on or after the Effective Date to the extent such employee
or dependent had satisfied any similar limitation or requirement under an analogous MICO plan prior
to the Effective Date.
(iv) With respect to matters described in this Section 6(f), MICO shall consult with DGI,
and consider in good faith the advice of DGI, prior to sending any material notices or other
material communication materials to its employees or former employees. Prior to the Effective
Date, subject to applicable Law, MICO shall provide DGI with reasonable access to such employees
and contact information for former employees for purposes of DGI providing reasonable notices or
other communication materials regarding DGI compensation and benefit plans and the matters
described in this subsection, provided that such notices or other communication materials are
reasonably approved in advance by MICO.
(v) MICO agrees that prior to the Closing Date, it will take all actions necessary to
commence the termination of its employee stock ownership plan.
(g) MICO Principal Office. For a period of five years from the Closing Date, DGI
will not take any action to relocate the principal office of MICO from Grand Rapids, Michigan.
(h) Loss and Adjusting Reserves Guarantee.
(i) WBM hereby guaranties DGI against any deficiency in excess of $1.0 million in the case
basis loss reserves, reserves for incurred but not reported losses and reserves for allocated loss
adjustment expenses of MICO (collectively, the “Reserves”) that are provided for on the Final
Closing Balance Sheet based on a final actuarial review of the development of the Reserves, if any.
Such actuarial review shall be conducted in preliminary form annually within 60 days of the
anniversary of the Effective Date with a final actuarial review and report being rendered within 60
days as of the third anniversary of the Effective Date (the “Final Redetermination Date”). WBM
shall make any guarantee payment due DGI within 10 Business Days after the final determination of
the amount thereof as provided in
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this subsection (h). This guarantee shall be the exclusive remedy of WBM with respect to the
Reserves.
(ii) DGI agrees to pay to WBM 50% of any redundancy in excess of $1.0 million in the
Reserves that are provided for on the Final Closing Balance Sheet based upon an actuarial review of
the development of the Reserves rendered within 60 days of the Final Redetermination Date, if any.
DGI shall pay any such payments to the Paying Agent within 10 Business Days after the final
determination thereof as provided in this subsection (h).
(iii) Annually, DGI shall cause Xxxxxxx Actuarial Services, Inc. (the “Actuary”) to
prepare an actuarial review within 60 days of each anniversary of the Effective Date and the
results shall be submitted to WBM and DGI upon completion in the form of a certified actuarial
report (each an “Annual Actuarial Report”). With the exception of the final report rendered on the
Final Redetermination Date, which final report shall be subject to the dispute resolution
procedures set forth in this subsection (h), each annual report shall be deemed by WBM and DGI to
be preliminary in form and shall not be binding on the parties. Each Annual Actuarial Report shall
consist of an actuarial redetermination as of each anniversary of the Effective Date, of (i) the
Reserves for liabilities of MICO incurred on or before the Effective Date, (ii) a determination of
the amount of reinsurance with respect to such liabilities and (iii) a determination of the losses
and loss adjustment expenses paid, net of proceeds collected from reinsurance purchased by MICO
prior to the Effective Date, by MICO during the period between the Closing Date and the respective
anniversary of the Effective Date with respect to liabilities incurred prior to the Effective
Date, which review shall be conducted by the Actuary (x) using its independent judgment based on
prevailing facts, circumstances and trends, (y) in accordance with generally accepted actuarial
standards and principles and (z) to the extent not inconsistent with the foregoing, in a manner and
applying a method consistent with the determination of the Reserves in MICO’s 2009 Annual
Statements. Each Annual Actuarial Report shall be accompanied by:
(A) a schedule that shows the composition of the Reserves, net of reinsurance purchased
by MICO prior to the Effective Date, in respect of losses incurred by MICO on or before the
Effective Date and in respect of the development of such losses after the Effective Date;
(B) a reconciliation of the amounts included in such schedule to the Reserves included, or
to be included, in the Annual Statements of MICO filed, or to be filed, with the state regulatory
authorities after the Effective Date; and
(C) a calculation of any payment required to be made in accordance with this subsection
(h).
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(iv) If WBM objects to the final report rendered on the Final Redetermination Date (a
“Dispute”), WBM shall give DGI a written notice of a Dispute (a “Dispute Notice”) which notice
shall be rendered within 30 days after the receipt by WBM of the final Annual Actuarial Report
rendered as of the Final Redetermination Date (the “Dispute Period”). Such Dispute Notice shall
set forth in reasonable detail the elements and amounts to which it objects and the basis for such
objection. DGI shall within 30 days after receipt of such Dispute Notice, attempt to resolve such
Dispute and agree in writing upon the final content of the respective Annual Actuarial Report and
upon the amount of any guarantee payment to be made by WBM to DGI and shall also provide the
information required by paragraph (d) of this subsection (h). In the event that WBM and DGI are
unable to resolve any Dispute within such 30-day period, then the Dispute shall immediately be
submitted to an independent actuary (the “Arbiter”) for resolution. Within 30 days from the date
that any such dispute is submitted to the Arbiter, the Arbiter shall deliver to DGI and WBM a
written report setting forth (i) the Arbiter’s determination of any guarantee payment to be made by
WBM to DGI, if any, as of such Anniversary of the Effective Date and (ii) the Arbiter’s
determination of the amount of the fees and expenses of the Arbiter arising from such Dispute and
the appropriate apportionment thereof among the parties hereto which in the absence of a frivolous
claim by either party shall be evenly split. Such report shall be final and binding on the parties
to this Agreement with respect to the Dispute. If WBM fails to give written notice of a Dispute
within the Dispute Period, the Actuarial Report rendered as of the Final Anniversary of the
Effective Date shall be deemed to have been accepted in the form in which it was delivered and
shall be final and binding upon the parties with respect to the Dispute in the absence of fraud or
manifest error. The fees and expanses of the Actuary and the Arbiter in connection with the
services each may provide pursuant to this subsection (h) shall be shared equally by WBM and DGI.
(v) Following the Closing, upon the delivery of reasonable prior written notice, WBM may
review, once each calendar year, claims payments, expenses, reinsurance and other matters directly
relating to the Reserves. In that regard, DGI shall, and shall cause its and MICO’ officers,
employees and auditors to:
(A) afford the officers, employees, agents, accountants, actuaries and representatives of
WBM reasonable access, for a period not to exceed 10 Business Days, during normal business hours
and upon reasonable advance written notice, to the relevant offices, employees, properties, books
and records of MICO; and
(B) during the review period provided for in clause [a], upon the reasonable written
request of WBM, furnish to the officers, employees, accountants, actuaries and representatives of
WBM such additional financial and operating data and other information regarding claims payments,
expenses, reinsurance and other matters directly relating to the Reserves as are available to MICO
or DGI.
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(vi) WBM’s guarantee in this subsection (h) shall expire on the making of any guarantee
payment required by the third Annual Actuarial Report.
(vii) Notwithstanding anything contained in this subsection (h) to the contrary, in the
event that all of the Reserves are, within the three-year period referenced in subsection (i)
actually paid by MICO and DGI provides evidence of the same, then in such event WBM shall begin to
make payments to DGI to the extent that such Reserves are actually paid and are in excess of the
$1.0 million threshold referenced in this subsection (h). DGI shall nonetheless cause MICO to
provide the reports referenced in this subsection (h).
(viii) During the period commencing on the date of this Agreement and ending on the date
on which the Annual Actuarial Report issued in connection with the Final Redetermination Date is
delivered to WBM, except as required by this Agreement, each of the Parties to this Agreement
agrees that it shall not engage the Actuary for the performance of any services, nor engage, nor
promise to engage, the Actuary for any services commencing following such period.
(i) Non-Disclosure and Non-Solicitation.
(i) In connection with the Merger and to protect the business and goodwill of MICO, WBM
agrees that, for a period commencing on the date of this Agreement and ending on the third
anniversary of the Effective Date, neither WBM nor any Affiliate of WBM shall induce or attempt to
persuade any employee of MICO to terminate such employment with MICO in order to enter into
employment with WBM or any such Affiliates provided, however, that this covenant shall not prohibit
WBM or its Affiliates from hiring such employees in the event that an employee responds to an
advertisement for employment that is not directed at such employee.
(ii) In furtherance of the Merger and to protect the business and goodwill of MICO, WBM
agrees, on behalf of itself and all of its Affiliates, that for a period commencing on the date of
this Agreement and ending on the fifth anniversary of the Effective Date, neither WBM nor any
other Affiliate of WBM shall disclose any information, in whatever form or whether now or later in
its possession, with respect to the policyholders or the agents of MICO, except as related to those
policyholders and agents that WBM has in common with MICO; provided, however, that the restrictions
of this subsection (i)(ii) shall not apply to the following information: (A) information that
comes into the public domain by means other than unauthorized disclosure by WBM; (B) information
that is required to be disclosed in a judicial or administrative proceeding, provided that WBM
provides DGI written notice as soon as reasonably practicable in advance of such disclosure so that
DGI has an opportunity to object to such disclosure or take action to assure the confidential
handling of such information, (C) information that is rightfully received by WBM from a third party
which WBM neither knows or has a reason to know is under a duty of confidentiality at the
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time of disclosure or (D) information that is approved for release and disclosure by the
written authorization of DGI.
(iii) In consideration of the Merger, WBM, on behalf of itself and any Affiliate, agrees,
for a period commencing on the date of this Agreement and ending on the fifth anniversary of the
Effective Date, not to offer any property and casualty insurance in the State of Michigan other
than the current lines of property and casualty insurance offered by NSI and any coverages
incidental to policies WBM or NSI issues to insureds in other states which have incidental
locations in Michigan. DGI agrees that NSI may offer new programs as long as these new programs
are not programs currently written by WBM commercial lines or personal lines and are programs
offered in other NSI states. The non-solicitation provisions in this Section 6(j) shall not limit
WBM’s ability to make changes in NSI products offered in markets outside of Michigan.
(iv) Without limiting the right of DGI and any of its successors or assigns to pursue all
other legal and equitable rights available to any of them for violation of the covenants set forth
in this subsection (i) by MICO, MICO agrees that other remedies cannot fully compensate DGI and its
successors and assigns for such a violation and that DGI and its successors and assigns shall be
entitled to injunctive relief to prevent violation or continuing violation hereof. It is the
intent and understanding of each party hereto that if, in any action before any court or agency
legally empowered to enforce this covenant, any term, restriction, covenant or promise is found to
be unreasonable and for that reason unenforceable, then such term, restriction, covenant or promise
shall be deemed modified to the extent necessary to make it enforceable by such court or agency.
(j) Use of Trademarks. From and after the Closing Date, except as permitted or
required by applicable Law, neither WBM nor any Affiliate nor any officer, director or employee of
WBM shall have the right to use any of the trademarks, trade names or applications therefor
heretofore used or owned by MICO or to use any trademarks or trade names similar thereto or designs
imitative thereof, except as officers or agents of MICO in connection with their businesses prior
to the Closing Date.
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7. Appointment of WBM.
(a) Powers of Attorney. Each of the Shareholders, by his, her or its acceptance
of the Merger Consideration, irrevocably constitutes and appoints WBM to act as such Person’s true
and lawful attorney in fact and agent and authorizes WBM acting for such Person and in such
Person’s name, place and stead, in any and all capacities to do and perform every act and thing
required or permitted to be done in connection with the transactions this Agreement contemplates,
as fully to all intents and purposes as such Person might or could do in person, including, without
limitation:
(i) to direct distribution of the Merger Consideration in accordance with Section 2;
(ii) to receive and direct distribution of the Purchase Price Escrow Amount in accordance
with Section 2;
(iii) to take any and all action on behalf of the Shareholders from time to time as WBM
may deem necessary or desirable to fulfill the interests and purposes of this Section 7(a) and to
engage agents and representatives, including accountants and legal counsel, to assist in connection
therewith;
(iv) to take any and all action on behalf of the Shareholders from time to time as WBM may
deem necessary or desirable, to prepare or cause to be prepared and file or cause to be filed any
Tax Return as contemplated by Section 6(d), to amend this Agreement and to make or enter into any
waiver, amendment, agreement, opinion, certificate or other document contemplated hereunder;
(v) to deliver all notices required to be delivered by the Shareholders; and
(vi) to receive all notices required to be delivered to the Shareholders.
In furtherance of the foregoing and the appointment of WBM herein made, each Shareholder,
fully and without restriction: [a] agrees to be bound by all notices received and agreements and
determinations made by and documents executed and delivered by WBM under this Agreement, and [b]
authorizes WBM to [i] deliver to DGI all certificates and documents to be delivered to DGI by the
Shareholders pursuant to this Agreement, together with any certificates and documents executed by
the Shareholders and deposited with WBM for such purpose, [ii] dispute or refrain from disputing
any Claim made by DGI under this Agreement, [iii] negotiate, compromise and settle any dispute
which may arise under this Agreement, [iv] pay any amounts due DGI under this Agreement, [v]
exercise or refrain from exercising any remedies available to the Shareholders under this
Agreement, [vi] sign any releases or other documents with respect to any such dispute or remedy,
[vii] waive any condition contained in this Agreement, [viii] give such instructions
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and do such other things and refrain from doing such other things as WBM, in its sole
discretion, deems necessary or appropriate to carry out the provisions of this Agreement, [ix]
receive all amounts payable by DGI to the Shareholders hereunder on behalf of the Shareholders and,
subject to clauses [x], [xi] and [xii], pay to each Shareholder each Shareholder’s share of such
amounts, [x] pay out of funds coming into the hands of WBM from DGI, all fees and expenses of the
Shareholders incurred in connection with the transactions this Agreement contemplates, including,
without limitation, the fees and expenses of counsel, accountants, brokers and other professional
advisors retained by or on behalf of the Shareholders, or any of them, in connection with such
transactions, [xi] retain such counsel, accountants and other professional advisors as WBM
reasonably deems necessary to assist it in the performance of its duties hereunder and pay the
fees, costs and expenses thereof out of the funds coming into the hands of WBM and [xii] retain out
of funds coming into the hands of WBM from DGI such amounts as WBM, in its sole discretion, deems
appropriate to be held as reserves for expected or potential future expenses or liabilities of the
Shareholders hereunder and pay such amounts to such parties as it deems appropriate.
Each of the Shareholders, by his, her or its acceptance of the Merger Consideration, grants
unto said attorney in fact and agent full power and authority to do and perform each and every act
and thing necessary or desirable to be done in connection with the matters described, as fully to
all intents and purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that WBM may lawfully do or cause to be done by virtue hereof. Each of the
Shareholders further acknowledges and agrees that upon execution of this Agreement, any delivery by
WBM of any waiver, amendment, agreement, opinion, certificate or other documents executed by WBM
pursuant to this Section 7, such Shareholder shall be bound by such documents as fully as if such
Shareholder had executed and delivered such documents.
(b) Liability of WBM. WBM shall not have by reason of this Agreement a fiduciary
relationship in respect of any Shareholder. WBM shall not be liable to any Shareholder for any
action taken or omitted by it hereunder or under any other document hereunder, or in connection
therewith, except that WBM shall not be relieved of any liability imposed by Law for gross
negligence or willful misconduct. WBM shall not be liable to any Shareholder for any apportionment
or distribution of payments made by it in good faith, and if any such apportionment or distribution
is subsequently determined to have been made in error, the sole recourse of any Shareholder to whom
payment was due, but not made, shall be to recover from other Shareholders any payment in excess of
the amount to which they are determined to have been entitled. WBM shall not be required to make
any inquiry concerning either the performance or observance of any of the terms, provisions or
conditions of this Agreement. Each of the Shareholders acknowledges and agrees that WBM shall not
be obligated to take any actions and shall be entitled to take such actions as WBM deems
appropriate in WBM’s sole discretion.
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(c) Actions of WBM. By his, her or its acceptance of the Merger Consideration,
each Shareholder agrees that DGI shall be entitled to rely on any action taken by WBM on behalf of
the Shareholders pursuant to Section 7(a) (each, an “Authorized Action”), and that each Authorized
Action shall be binding on each Shareholder as fully as if such Person had taken such Authorized
Action.
(d) Letter of Transmittal. The Letter of Transmittal shall contain an affirmation
of the provisions of this Section 7.
8. Conditions to Obligation to Close.
(a) Conditions to Obligation of Each Party. The respective obligations of WBM,
MICO, DGI and Merger Sub to effect the Merger are subject to the satisfaction or, to the extent
permitted by Law, waiver on or prior to the Closing Date of the following conditions:
(i) Shareholder Approval. MICO shall have obtained the Requisite Shareholder
Vote.
(ii) Transaction Approvals. The parties shall have received the Transaction
Approvals without any conditions or restrictions that would, individually or in the aggregate, be
reasonably likely to have a material adverse effect on the business of DGI or MICO, any applicable
waiting periods shall have terminated or expired.
(iii) No Injunctions or Restraints; Illegality. No Law shall be in effect and no
temporary restraining Order, preliminary or permanent injunction or other Order issued by any
Governmental Authority of competent jurisdiction shall have been issued and remain in effect that
has the effect of making consummation of the Merger illegal or otherwise prohibiting consummation
of the Merger; provided that prior to asserting this condition, the Party asserting this condition
shall have used its commercially reasonable efforts to prevent the entry of any such temporary
restraining Order, injunction or other Order, including taking any and all actions required to
comply with Section 5(a) and to appeal promptly any temporary restraining Order, injunction or
other Order that may be entered.
(iv) Certificates of Merger. DGI shall have filed the Certificates of Merger with
the DELEG and the Office of the Secretary.
(b) Conditions to Obligation of DGI and Merger Sub. The obligations of DGI and
Merger Sub to effect the Merger are further subject to the satisfaction or, to the extent permitted
by Law, waiver by DGI, on or prior to the Closing Date of the following additional conditions:
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(i) No Misrepresentation or Breach of Covenants and Warranties. There shall have
been no material breach by WBM or MICO in the performance of any of their respective covenants and
agreements herein, each of the representations and warranties of WBM or MICO contained or referred
to in this Agreement that is qualified by materiality shall be true and correct on the Closing Date
as though made on the Closing Date and each of the representations and warranties that is not so
qualified shall be true and correct in all material respects on the Closing Date as though made on
the Closing Date (except as otherwise set forth in the MICO Disclosure Schedule) that for the year
ended December 31, 2009, all of the assets described in MICO’s Annual Statement (the “Annual
Statement”) for the year ended December 31, 2009 were the absolute property of MICO, free and clear
from any liens or claims thereon, except as described in the Annual Statement together with the
related exhibits, schedules and explanations contained in such Annual Statement, and that the
Annual Statement, together with the related exhibits, schedules and explanations contained, annexed
or referenced in the Annual Statement or annexed or referred to, is a full and true statement of
all of the assets and liabilities and of the condition and affairs of MICO as of the reporting
period stated above, and of its income and reduction therefrom for the period ended, and have been
completed in accordance with the NAIC Annual Statement Instructions and Accounting Practices and
Procedures manual. There shall have been delivered to DGI a certificate or certificates to that
effect, dated the Closing Date, and signed by an officer of each of WBM or MICO.
(ii) No Changes in or Destruction of Property. There shall not have been, between
the date hereof and the Closing Date, (A) any change, condition, event or development that,
individually or in the aggregate, would constitute a MICO Material Adverse Effect as to MICO, (B)
no adverse federal, state or local legislative or regulatory change affecting in any material
respect the services or business of MICO that would constitute a MICO Adverse Effect as to MICO,
(C) no material damage to any Leased Real Property or material assets of MICO by fire, flood,
casualty, act of God or the public enemy or other cause, regardless of insurance coverage for such
damage, so as to impair in any material respect the ability of MICO to render services or continue
operations and (D) no material and adverse development or proceeding affecting the MICO Permits in
each of the states listed in Schedule T of its Annual Statement for the year ending December 31,
2009. There shall have been delivered to DGI a certificate, dated the Closing Date, and signed on
behalf of each of WBM or MICO to the effect that between the date hereof and the Closing Date there
has been no such MICO Adverse Effect as to MICO as stated in clause (A) hereof, no such material
damage as stated in clause (C) hereof and no adverse licensing development as stated in clause (D)
hereof.
(iii) Legal Matters.
(A) Filings. All Transaction Approvals required to be obtained prior to the
Closing Date shall have been obtained and not rescinded or adversely modified
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or limited as set forth in the proviso or, if merely required to be filed, such filings shall
have been made and accepted, and all waiting periods prescribed by applicable Law shall have
expired or been terminated in accordance with applicable Law; provided that such approvals shall
not contain any conditions or limitations that compel or seek to compel MICO to dispose of all or
any material portion of its business or Assets or impose or seek to impose any material limitation
on the ability of MICO to conduct its business or own its Assets after the Closing Date in
substantially the same manner as it currently conducts its business or owns its Assets.
(B) No Order entered or Law promulgated or enacted by any Governmental Authority shall be
in effect that would prevent the consummation of the Merger or the other transactions this
Agreement contemplates, and no Proceeding brought by a Governmental Authority shall have been
commenced and be pending which seeks to restrain, prevent or materially delay or restructure the
transactions contemplated hereby or which otherwise questions the validity or legality of any such
transactions.
(iv) Additional Claims. There shall have been delivered to DGI a certificate,
dated the Closing Date, and signed by an officer of each of WBM or MICO describing all corporate,
non-insurance related actions, suits, proceedings or investigations pending or threatened against
MICO up to the Closing Date other than actions, suits, proceedings or investigations not described
in the MICO Disclosure Schedule that could reasonably be expected to result in a material adverse
change in MICO’s properties, business or assets or that questions the validity of this Agreement or
any action taken by WBM or MICO pursuant to this Agreement.
(v) Minimum MICO Surplus. The policyholders surplus of MICO, determined in
accordance with SAP, shall be not less than $30 million as of October 31, 2010.
(vi) Escrow Agreement. Each of WBM or MICO and the Escrow Agent shall have duly
executed the Escrow Agreement in substantially the form of Appendix D hereto and furnished DGI with
a conformed copy thereof.
(vii) Trust Agreement. Each of WBM and the Trustee shall have duly executed and
delivered the Trust Agreement in substantially the form of Appendix E hereto to DGI as well as a
certificate from the Trustee to the effect that DGI and WBM shall have made the deposit with the
Trustee in the amount the of the Trust Agreement. The Trustee shall furnish DGI with a conformed
copy of the Trust Agreement evidencing that WBM has made the required deposit with the Trustee.
(viii) Simultaneous Closing of Surplus Note. The closing of the Surplus Note
Purchase Agreement between DMIC and WBM in the form of Appendix F to this Agreement providing for
the purchase of the Surplus Note of MICO by DMIC from WBM shall occur simultaneously with the
Closing of the transactions this Agreement contemplates.
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(c) Conditions to Obligations of MICO. The obligations of MICO to effect the
Merger are further subject to the satisfaction or, to the extent permitted by Law, waiver by MICO,
on or prior to the Closing Date of the following conditions:
(i) Representations and Warranties. Each of the representations and warranties of
DGI and Merger Sub set forth in this Agreement shall be true and correct as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing Date (except to the
extent expressly made as of an earlier date, in which case as of such earlier date), except where
the failure of such representations and warranties to be true and correct (without giving effect to
any qualification or limitation as to “materiality” or “DGI Material Adverse Effect” set forth
therein) would not, individually or in the aggregate, reasonably be expected to have a material
adverse effect.
(ii) Performance of Obligations of DGI and Merger Sub. Each of DGI and Merger Sub
shall have performed or complied in all material respects with all agreements and covenants
required to be performed by each of them under this Agreement at or prior to the Closing.
(iii) Officer’s Certificate. MICO shall have received a certificate from an
executive officer of DGI confirming the satisfaction of the conditions set forth in Sections
8(c)(i) and 8(c)(ii).
(iv) WBM Reinsurance Agreements. All of WBM’s rights and obligations pursuant to
any Quota Share Reinsurance Contract between MICO and WBM (the “WBM Reinsurance Agreements”) shall
remain in full force and effect with respect only to those MICO insurance policies with an initial
effective date prior to the Effective Date of this Agreement. The WBM Reinsurance Agreements shall
terminate as of the Effective Date without any further action by WBM or MICO on a run-off basis.
As of the Effective Date, pursuant to the Trust Agreement in the form of Appendix E, WBM shall have
deposited pursuant to such Trust Agreement that amount as is sufficient to secure the payment of
MICO’s unearned premiums and unpaid losses and loss adjustment expenses that WBM has assumed as of
the Effective Date pursuant to the WBM Reinsurance Agreements.
(v) NSI Reinsurance Agreement. MICO and WBM shall have entered into a quota
reinsurance agreement in the form of Appendix C to this Agreement whereby MICO agrees to reinsure
business written by NSI, a division of WBM, in Michigan through MICO’s agencies for a minimum
period of two years following the Effective Date (the “NSI Reinsurance Agreement”).
(vi) Payment of Merger Consideration. DGI shall have paid the Preliminary Merger
Consideration to the Paying Agent.
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(vii) Purchase of Surplus Note. DMIC shall have purchased from and paid WBM for
that certain Surplus Note in the face amount of $5.0 million dated January 24, 2002 issued to WBM
Corporation and MICO for an amount equal to the unpaid principal and interest due thereunder. In
exchange for such payment, WBM shall assign all rights under the Surplus Note to DMIC upon its
receipt of approval from the State of Michigan regarding the transfer of ownership of the Surplus
Note.
(viii) MICO Reinsurance Programs. MICO shall continue to participate in its existing
excess of loss and catastrophe reinsurance programs on the same terms and conditions as in place as
of the date of this Agreement with WBM and external reinsurers through December 31, 2010, at which
time MICO’s participation in such programs shall terminate on a cut-off basis. In the event any
losses incurred on or before December 31, 2010 result in an obligation to pay any reinstatement
premiums or profit-sharing refunds to any reinsurers, WBM and MICO shall allocate said obligations
between them on a pro-rata basis in proportion to the losses of WBM and MICO that give rise to the
obligation.
(d) Frustration of Closing Conditions. None of WBM, MICO, DGI or Merger Sub may rely
on the failure of any condition set forth in this Section 8 to be satisfied if such Party’s failure
to act in good faith or to use its reasonable best efforts to consummate the transactions this
Agreement contemplates in accordance with Section 5(a) has been a principal cause of the failure of
such condition to be satisfied.
9. Termination of this Agreement.
(a) Termination. This Agreement may be terminated and the transactions this Agreement
contemplates may be abandoned at any time prior to the Closing Date, whether before or after
receipt of the Requisite Shareholder Vote, with any termination by DGI also being an effective
termination by Merger Sub, as follows:
(i) by mutual written consent of DGI and MICO;
(ii) by either DGI or MICO, if:
(A) the Merger shall not have been consummated on or before January 1, 2011 (the “Initial
Outside Date”); provided, however, that if on the Initial Outside Date any of the conditions to
Closing set forth in Section 8(a)(ii), Section 8(a)(iii) and Section 8(b)(iii) shall not have been
satisfied but all other conditions to Closing set forth in Section 8 shall be satisfied or capable
of being satisfied, then the Initial Outside Date shall be extended to April 1, 2011 if DGI or MICO
notifies the other in writing on or prior to the Initial Outside Date of its election to extend the
Initial Outside Date (as so extended, the “Outside Date”);
(B) any Governmental Authority of competent jurisdiction issues an Order or takes any other
action permanently restraining, enjoining or otherwise prohibiting the Merger and such Order or
other action shall have become final and non-
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appealable; provided, however, that the right to terminate this Agreement pursuant to this
Section 9(a)(ii)[b] shall not be available to any party whose failure to act in good faith or to
use its commercially reasonable efforts to consummate the transactions this Agreement contemplates
has been a principal cause of the application or imposition of such Order or action; or
(C) the Requisite Shareholder Vote shall not have been obtained upon a vote taken thereon at
the Special Meeting or at any adjournment or postponement thereof.
(iii) by DGI if MICO or WBM shall have breached or failed to perform any of its
representations, warranties, covenants or agreements contained in this Agreement, which breach or
failure to perform [a] is incapable of being cured by MICO by the Outside Date or [b] if capable of
being cured, has not been cured by MICO within 45 days following written notice to MICO from DGI or
Merger Sub of such breach, which notice states DGI’s intention to terminate this Agreement pursuant
to this Section 9(a)(iii), and, in each case, would result in a failure of any condition set forth
in Section 8(b)(i) or Section 8(b)(ii).
(iv) by MICO if DGI or Merger Sub shall have breached or failed to perform any of its
representations, warranties, covenants or agreements contained in this Agreement, which breach or
failure to perform [a] is incapable of being cured by DGI or Merger Sub, as the case may be, by the
Outside Date or [b] if capable of being cured, has not been cured by DGI or Merger Sub, as the case
may be, within forty five (45) days following written notice to DGI or Merger Sub, as the case may
be, from MICO of such breach, which notice states MICO’s intention to terminate this Agreement
pursuant to this Section 9(a)(iv), and, in each case, would result in a failure of any condition
set forth in Section 8(c)(i) or Section 8(c)(ii).
(b) Effect of Termination. In the event of any termination of this Agreement as
provided in Section 9(a), the obligations of the Parties shall terminate and there shall be no
liability on the part of any Party with respect thereto, except for the confidentiality provisions
of Section 5(d) and the provisions of Sections 3(d) and the provisions of Sections 3(d) and 4(f),
this Section 9(b), Section 9(c) and Section 10, each of which shall survive the termination of this
Agreement and remain in full force and effect; provided, however, that neither DGI nor MICO shall
be released from any liabilities or damages arising out of any willful or intentional breach of any
representation or warranty, covenant or agreement under this Agreement or fraud, prior to such
termination.
(c) Reimbursement of Expenses. If this Agreement is terminated pursuant to Section
9(a)(i), 9(a)(ii)[a] and 9(a)(ii)[b], no Party shall have any liability or obligation to the other
Party to this Agreement as a result of such termination. If this Agreement is terminated pursuant
to Sections 9(a)(ii)[c], 9(a)(iii) and 9(a)(iv), the non breaching Party shall be entitled to
recover its costs, fees, and expenses which are incurred in connection with the
negotiation
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of the
transactions this Agreement contemplates, up to a maximum amount of $300,000. In the event that a
condition precedent to its obligations is not satisfied, nothing contained
herein shall be deemed to require any Party to terminate this Agreement, rather than to waive
such condition precedent and proceed with the transactions this Agreement contemplates or permit
the other Party additional time to attempt to satisfy such condition precedent.
(d) Procedure for Termination. If this Agreement is terminated as provided herein,
each Party shall redeliver all documents, workpapers and other material of the other Party relating
to the transactions this Agreement contemplates whether so obtained before or after execution
hereof, to the Party furnishing the same. A termination of this Agreement pursuant to Section 9(a)
shall, in order to be effective, require in the case of each of DGI and Merger Sub, action by its
board of directors or, to the extent permitted by Law, the duly authorized designee of its board of
directors, and in the case of MICO, to the extent permitted by Law, action by the Board of
Directors of MICO. Termination of this Agreement prior to the Effective Date shall not require the
approval of the shareholders of MICO. A terminating Party shall provide written notice of
termination to the other Parties specifying with reasonable particularity the basis for this
termination. If more than one provision in Section 9(a) is available to a terminating Party in
connection with a termination, a terminating Party may rely on any or all available provisions in
Section 9(a) for any termination.
10. Indemnification.
(a) Indemnification by the Shareholders. Notwithstanding the Closing, but subject to
the limitations set forth in this Agreement, the Shareholders shall indemnify, defend and hold DGI
and Merger Sub and their respective directors, officers, employees and shareholders (collectively,
the “DGI Indemnified Parties”) harmless from and against any damages, liabilities, losses, costs or
deficiencies, including, but not limited to, reasonable attorneys’ fees and other costs and
expenses incident to proceedings or investigations, or the defense or settlement of any claim, but
not including lost profits, diminution in value, incidental, consequential or punitive damages,
(collectively, the “DGI Damages”) arising out of, resulting from or relating to: (i) any
inaccuracy in or breach of the representations and warranties of MICO set forth in Section 3 of
this Agreement and (ii) any failure of (A) MICO or the Shareholders to duly perform or observe any
covenant or agreement to be performed or observed by MICO or the Shareholders pursuant to Section 5
of this Agreement or (B) the Shareholders fail to duly perform or observe any covenant or agreement
to be performed or observed by the Shareholders pursuant to Section 6 of this Agreement.
(b) Limitations on the Shareholders’ Indemnification Obligations.
(i) Except in the case of fraud, no demand or claim for indemnification pursuant to Section
10(a) shall be made later than the date that is twelve months after the Effective Date, except that
[a] claims for indemnification for breaches of the
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representations and warranties set forth in the
first sentence of Section 3(a)(i), the first sentence of Section 3(a)(ii), Section 3(e), and
Section 3(h) shall survive the Effective Date indefinitely, and [b] claims for indemnification for
breaches of the representations and warranties set forth in Section 3(l) and Section 3(u) shall
survive the Closing for the applicable statutes of limitations, including any periods of waiver or extension thereof, plus
60 days. The Shareholders’ obligation to indemnify DGI with respect to a claim for a breach of a
representation and warranty shall extend, with respect to such claim, beyond the applicable
survival period only if DGI asserts such claim by notice in writing to the Shareholders prior to
the expiration of such survival period.
(ii) No indemnification shall be payable by the Shareholders under this Agreement unless and
until the aggregate amount of DGI Damages exceeds 1% of the Merger Consideration (the “Basket”).
At such time as the aggregate amount of DGI Damages exceeds the Basket, the Shareholders shall be
liable to DGI only for such amount of the DGI Damages that exceed the Basket; provided, however,
that in no event shall the aggregate liability of the Shareholders for indemnification under this
Section 10 exceed 10% of the Merger Consideration. The limitation set forth in this Section
10(b)(ii) shall not apply to claims for DGI Damages based upon a breach of the representations and
warranties set forth in the first sentence of Section 3(a)(i) (Organization), the first sentence of
Section 3(a)(ii) (Authorization), Section 3(e) (Capitalization) and Section 3(h) (Title to Personal
Property) (collectively, the “Fundamental Representations”). Any amounts claimed by or paid to DGI
pursuant to this Section 10 in connection with breaches of Fundamental Representations shall not be
counted toward the Basket. In no event shall the Shareholders’ aggregate liability with respect to
claims based upon a breach of the Fundamental Representations under this Agreement exceed the
Merger Consideration.
(iii) DGI shall not be entitled to indemnification under this Agreement:
(A) in connection with any claim for indemnification hereunder with respect to which DGI has a
claim, right of indemnification or right of set off against any third party, unless DGI assigns
such claim, right of indemnification or right of set off against such third party to the
Shareholders;
(B) to the extent of the value of any net Tax benefit realized by DGI or MICO in connection
with DGI Damages which form the basis of DGI’s claim for indemnification hereunder, as determined
pursuant to Section 10(b)(iii);
(C) unless DGI has given the Shareholders written notice of such claim, setting forth in
reasonable detail the facts and circumstances pertaining thereto prior to the expiration of any
applicable survival period hereunder;
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(D) to the extent of any net insurance proceeds actually received by DGI in connection with
the facts giving rise to such indemnification, as determined pursuant to Section 10(b)(iv);
(E) to the extent DGI Damages are reflected in the Final Closing Balance Sheet or the
calculation of the Final Book Value of MICO; and
(F) in connection with any claim for indemnification hereunder with respect to a breach of
representation or warranty or breach of covenant [i] if DGI had knowledge of such breach at the
time of the breach or, if the Closing occurs, at any time prior to the Closing or [ii] if DGI had
knowledge at any time prior to Closing of the facts and circumstances constituting all or part of
such breach.
(iv) The amount of any indemnity provided in this Agreement shall be reduced by the amount of
any reduction in Taxes paid or payable by any DGI Indemnified Party or MICO as a result of DGI
Damages giving rise to such indemnity claim. If the indemnity amount is paid prior to DGI
Indemnified Parties or MICO realizing a reduction in Taxes in connection with DGI Damages giving
rise to such payment, and DGI Indemnified Parties or MICO subsequently realize such reduction in
Taxes, then DGI Indemnified Parties shall pay to WBM, on behalf of the Shareholders, the amount of
such reduction in Taxes, but not in excess of the indemnification payment or payments actually
received with respect to such DGI Damages. For purposes of the preceding two sentences, DGI
Indemnified Parties or MICO shall be deemed to have realized a reduction in Taxes with respect to a
taxable year if, and to the extent that, DGI Indemnified Parties’ or MICO’s cumulative liability
for Taxes from the Effective Date through the end of such taxable year, calculated by excluding any
Tax items attributable to DGI Damages from all taxable years and excluding any amounts received
from the Shareholders for indemnification for such DGI Damages, exceeds DGI Indemnified Parties or
MICO’s actual cumulative liability for Taxes through the end of such taxable year, calculated by
taking into account any Tax items attributable to the amount of DGI Damages for all taxable years
to the extent permitted by relevant Tax Law and treating such Tax items as the last items claimed
for any taxable year.
(v) The amount of any indemnity provided in this Agreement shall be computed net of any
insurance proceeds actually received by a DGI Indemnified Party in connection with or as a result
of any claim giving rise to an indemnification claim hereunder. If the indemnity amount is paid
prior to DGI Indemnified Party’s actual receipt of insurance proceeds related thereto, DGI shall
assign its right to such insurance and allow WBM to pursue its collection of such insurance
proceeds. In addition, if a DGI Indemnified Party subsequently receives such insurance proceeds,
then DGI Indemnified Party shall promptly pay to WBM, on behalf of the Shareholders, the amount of
insurance proceeds subsequently received, net of all related costs, expenses and other DGI Damages,
but not more, in the aggregate, than the indemnity amount paid by the Shareholders. The
Shareholders’ obligation to pay an indemnification claims pursuant to this Agreement in any
instance in
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which insurance is reasonably available to cover the events and circumstances giving
rise to the indemnification claim is subject to DGI Indemnified Party first filing a claim under
the applicable insurance policies.
(vi) Except as expressly provided in this Agreement, the Escrow Agreement and the Trust
Agreement after the Closing, the Shareholders shall have no obligation or liability to the DGI
Indemnified Parties and DGI Indemnified Parties and MICO shall have no claim or recourse against
the Shareholders arising out of or in connection with
this Agreement or the transactions this Agreement contemplates, it being understood and agreed
by the parties that the remedies provided for in this Agreement shall be the sole and exclusive
remedies for any such claim for any such matters, whether such claims are framed in contract, tort,
violation of Law or otherwise.
(vii) The Shareholders shall not have any liability under any provision of this Agreement for,
and DGI Damages shall not include, any incidental, consequential, including diminution in value or
lost profits, exemplary or punitive damages, other than such damages for the benefit of a third
party).
(c) Indemnification by DGI. Notwithstanding the Closing, but subject to the
limitations set forth in this Agreement, DGI agrees to indemnify, defend and hold the Shareholders
harmless from and against any damage, liability, loss, cost or deficiency (including, but not
limited to, reasonable attorneys’ fees and other costs and expenses incident to proceedings or
investigations or the defense or settlement of any claim but not including incidental, diminution
in value, consequential or punitive damages) (the “Shareholders’ Damages”) arising out of,
resulting from or relating to any of the following: (i) any inaccuracy in or breach of the
representations or warranties of DGI and the Merger Sub set forth in this Agreement; (ii) any
failure to duly perform or observe any term, provision or covenant to be performed or observed by
DGI or the Merger Sub pursuant to this Agreement or any agreement to be executed by DGI or the
Merger Sub pursuant to the terms of this Agreement; (iii) any and all liabilities relating to MICO
or the Surviving Corporation which arise after the Effective Date; and (iv) in connection with the
terms of Section 2(b)(vii), any portion of the Payment Fund delivered to DGI pursuant to Section
2(b)(vii).
(d) Procedure.
(i) Following the discovery of any facts or conditions which could reasonably be expected to
give rise to either DGI’s Damages or the Shareholders’ Damages, the party seeking indemnification
under this Agreement (the “Indemnified Party”) shall, within 60 days thereafter, provide written
notice to the party from whom indemnification under this Agreement is sought (the “Indemnifying
Party”), specifying the factual basis of the claim in reasonable detail to the extent then known by
the party seeking indemnification; provided that the failure to give such notice in such time
period shall not relieve the
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Indemnifying Party of its obligations except to the extent it can show
prejudice from such failure.
(ii) If any Indemnified Party receives notice of any matter involving a third party which, if
sustained, could give rise to a claim for indemnification hereunder (a “Third Party Claim”), the
Indemnified Party shall within the time specified in Section 10(d)(i), provide written notice to
the Indemnifying Party of such matter setting forth with reasonable specificity the facts and
circumstances as to which such party has received notice; provided, however, that the Indemnified
Party shall in any event give written notice to the Indemnifying Party within such period of time
as shall be reasonably necessary to allow the Indemnifying Party to respond to any pleading or
other document for which a timely
response is required; provided further, however, that no delay on the part of the Indemnified
Party in notifying the Indemnifying Party shall relieve the Indemnifying Party from any obligation
hereunder unless, and then solely to the extent, the Indemnifying Party is thereby prejudiced.
(iii) Within 90 days after the Indemnifying Party has received the notice described in Section
10(d)(ii) from the Indemnified Party, or such shorter period as is required to avoid prejudice in
any claim, suit or proceeding, the Indemnifying Party shall have the right to assume and thereafter
conduct the defense of the Third Party Claim with counsel of its choice reasonably satisfactory to
the Indemnified Party; provided, however, that the Indemnifying Party must conduct the defense of
the Third Party Claim actively and diligently thereafter in order to preserve its rights in this
regard; provided further, however, that the Indemnifying Party may not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnified Party, which consent shall not be unreasonably withheld or
delayed, unless the judgment or proposed settlement involves only the payment of money damages,
resolves the claim entirely, and does not impose an injunction or other equitable relief upon the
Indemnified Party. The Indemnified Party, at its option and expense, shall have the right to
participate in any defense undertaken by the Indemnifying Party with legal counsel of its own
selection.
(iv) Unless and until the Indemnifying Party assumes the defense of the Third Party Claim as
provided in Section 10(d)(iii), the Indemnified Party may defend against the Third Party Claim in
any manner it reasonably deems appropriate.
(v) In no event shall the Indemnified Party consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld or delayed.
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(vi) The Indemnified Party and the Indemnifying Party may agree in writing, at any time, as to
the existence and amount of a Third Party Claim, and, upon the execution of such agreement, such
Third Party Claim shall be deemed established.
(vii) The Indemnified Party shall provide all information and assistance reasonably requested
by the Indemnifying Party in order to evaluate any Third Party Claim and affect any defense,
compromise or settlement thereof.
11. Miscellaneous.
(a) Press Releases and Public Announcements. All parties shall work in good faith to
agree upon and issue appropriate press releases or public announcements relating to the subject
matter of this Agreement prior to or after the Closing.
(b) Third Party Beneficiaries. Except as contemplated by Section 6(f), this Agreement
shall not confer any rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement, including the documents referred to herein,
constitutes the entire agreement between the Parties and supersedes any prior understandings,
agreements, or representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof, other than the Confidentiality Agreement, which
shall remain in full force and effect.
(d) Succession and Assignment. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests or obligations hereunder
without the prior written approval of DGI and WBM; provided, however, that, unless expressly
prohibited hereunder, DGI may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations
hereunder, in any or all of which cases DGI nonetheless shall remain responsible for the
performance of all of its obligations hereunder.
(e) Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
instrument.
(f) Headings. The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims and other communications
hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder
shall be deemed duly given if personally delivered or is sent by
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registered or certified mail,
return receipt requested, postage prepaid, or by reputable overnight courier and addressed to the
intended recipient as set forth :
If to MICO:
Michigan Insurance Company
0000 Xxxx Xxxxxxxx X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: President
Facsimile: 000-000-0000
0000 Xxxx Xxxxxxxx X.X., Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Attention: President
Facsimile: 000-000-0000
If to the Shareholders or WBM:
West Bend Mutual Insurance Company
0000 Xxxxx 00xx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Facsimile: 000-000-0000
0000 Xxxxx 00xx Xxxxxx
Xxxx Xxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esq.
Facsimile: 000-000-0000
If to DGI:
Donegal Group Inc.
0000 Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Facsimile: 000-000-0000
0000 Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx
Facsimile: 000-000-0000
Any party may send any notice, request, demand, claim or other communication hereunder to the
intended recipient at the address set forth using any other means, including messenger service,
telecopy, telex, ordinary mail or electronic mail, but no such notice, request, demand, claim, or
other communication shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to which notices, requests,
demands, claims and other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set forth.
(h) Governing Law; Jurisdiction. This Agreement shall be governed by and construed in
accordance with the internal Laws of the State of Michigan (i.e., without giving effect to any
choice or conflict of Law provision or rule, whether of the State of Michigan or any other
jurisdiction, that would cause the application of the Laws of any jurisdiction other than the State
of Michigan.) Each of the Parties hereby (i) irrevocably submits to the exclusive jurisdiction of
any state or federal court sitting in the State of Michigan in any action, suit or proceeding
arising out of or relating to this Agreement and agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court,
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(ii) waives, and agrees not to assert in
any such suit, action or proceeding, any claim that [a] it is not personally subject to the
jurisdiction of such court or of any other court to which proceedings in such court may be
appealed, [b] such suit, action or proceeding is brought in an inconvenient forum or [c] the venue
of such suit, action or proceeding is improper, (iii) expressly waives any requirement for the
posting of a bond by the Party bringing such suit, action or proceeding and (iv) consents to
process being served in any such suit, action or proceeding by mailing, certified mail, return
receipt requested, a copy thereof to such Party at the address in effect for notices hereunder, and
agrees that such services shall constitute good and sufficient service of process and notice
thereof. Nothing in this Section 11(h) shall affect or limit any right to serve process in any
other manner permitted by Law.
(i) Amendments and Waivers. No amendment of any provision of this Agreement shall be
valid unless the same shall be in writing and signed by MICO, DGI, Merger Sub and WBM. No waiver
by any such Party of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction, unless such invalidity or
unenforceability would frustrate the basic objectives of the parties in entering into this
Agreement.
(k) Expenses. Each of DGI, Merger Sub, the Shareholders, and MICO will bear its own
costs and expenses, including legal, accounting, and investment banking fees and expenses, incurred
in connection with this Agreement and the transactions this Agreement contemplates. All transfer,
documentary, sales, use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges, including any penalties and interest, incurred in
connection with the consummation of the transactions this Agreement contemplates, shall be paid by
DGI when due, and DGI will, at its own expense, file all necessary Tax Returns and other
documentation with respect to all such Taxes, fees and charges, and, if required by applicable Law,
the Parties will, and will cause their Affiliates to, join in the execution of any such Tax Returns
and other documentation.
(l) Construction. The Parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption
or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
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(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules identified in
this Agreement are incorporated herein by reference and made a part hereof.
(n) Disclosure Schedule. The inclusion of information in the MICO Disclosure Schedule
shall not be construed as an admission that such information is material to MICO. In addition,
matters reflected in the MICO Disclosure Schedule are not necessarily limited to matters required
by this Agreement to be reflected in the MICO Disclosure Schedule. Such additional matters are set
forth for informational purposes only and do not necessarily include other matters of a similar
nature.
12. Definitions.
(a) Specific Definitions. As used in this Agreement, the following terms have the
meanings set forth or referenced:
“Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the
Securities Exchange Act.
“Agreement” means this Agreement and Plan of Merger.
“Annual Statement” has the meaning set forth in Section 8(b)(i).
“Authorized Action” has the meaning set forth in Section 7(b).
“Basket” has the meaning set forth in section 10(b)(ii).
“Benefits Continuation Period” has the meaning set forth in Section 6(f)(i).
“Book Value of MICO” means the Book Value of MICO of all assets of MICO less all liabilities
of MICO, valued in accordance with GAAP and the methods, policies and assumptions otherwise set
forth herein, as reflected in the Preliminary Closing Balance Sheet or Final Closing Balance Sheet,
as applicable.
“Business Day” means any day other than Saturday, Sunday or a day on which banks in the City
of Grand Rapids, Michigan are authorized or required by Law to close.
“Certificates” has the meaning set forth in Section 2(c)(ii).
“Certificates of Merger” has the meaning set forth in Section 1(c).
“Closing” has the meaning set forth in Section 1(b).
“Closing Date” has the meaning set forth in Section 1(b).
“Code” means the Internal Revenue Code of 1986, as amended.
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“Confidentiality Agreement” has the meaning set forth in Section 5(d).
“Continuing Employees” has the meaning set forth in Section 6(f)(i).
“Current Insurance” has the meaning set forth in Section 6(e)(iii).
“Debt” means all debt of MICO for borrowed money as of the Effective Date.
“DELEG” has the meaning set forth in Section 1(c).
“DGI” has the meaning set forth in the preface.
“DGI Damages” has the meaning set forth in Section 10(a).
“DGI Disclosure Schedule” has the meaning set forth in Section 4.
“DGI Indemnified Parties” has the meaning set forth in Section 10(a).
“DGI Insurance Approvals” has the meaning set forth in Section 4(c).
“DGI Material Adverse Effect” means, with respect to DGI and Merger Sub, any effect or change
that would be materially adverse to the business of DGI and Merger Sub taken as a whole; provided
that none of the following shall be deemed to constitute, and none of the following shall be taken
into account in determining whether there has been, a DGI Material Adverse Effect: (i) any adverse
change, event, development, or effect arising from or relating to [a] general business or economic
conditions, including such conditions related to the business of DGI and Merger Sub, [b] national
or international political or social conditions, including the engagement by the United States in
hostilities, whether or not pursuant to the declaration of a national emergency or war, or the
occurrence of any military or terrorist attack upon the United States, or any of its territories,
possessions, or diplomatic or consular offices or upon any military installation, equipment or
personnel of the United States, [c] financial, banking, or securities markets, including any
disruption thereof and any decline in the price of any security or any market index, [d] changes in
GAAP or SAP, [e] changes in Laws, rules, regulations, Orders, or other binding directives issued by
any Governmental Authority or [f] the taking of any action contemplated by this Agreement and the
other agreements this Agreement contemplates, (ii) any existing event, occurrence, or circumstance
with respect to which DGI has knowledge as of the date of this Agreement, (iii) any adverse change
in or effect on the business of DGI and Merger Sub that is cured by DGI and Merger Sub before the
earlier of [a] the Closing Date and [b] the date on which this Agreement is terminated pursuant to
Section 9 and (iv) the execution and announcement of this Agreement and the consummation of the
transactions this Agreement contemplates or the taking of any action outside the Ordinary Course of
MICO’s Business that is expressly required by the Agreement.
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“DGI Permits” has the meaning set forth in Section 4(a).
“Effective Date” has the meaning set forth in Recital F.
“Employee Pension Benefit Plan” has the meaning set forth in ERISA section 3(2).
“Employee Welfare Benefit Plan” has the meaning set forth in ERISA section 3(1).
“Environmental Claim” means any and all administrative or judicial actions, suits, claims,
liens, proceedings or notices of noncompliance or violation by any Person alleging potential
liability arising out of, based on or resulting from: (i) the presence, or release into the
environment, of any Hazardous Substance at any location, whether or not owned by MICO; or (ii)
circumstances forming the basis of any violation of any Environmental Law or (iii) any and all
claims by any Person seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from the presence
or Release of any Hazardous Substances.
“Environmental Laws” means all federal, state or local statutes, regulations, ordinances,
Codes and Orders, in effect on the date of this Agreement and relating to the environment relating
to Hazardous Substances, including Releases or threatened Releases of Hazardous Substances.
“Environmental Permits” means all permits, licenses, registrations, and governmental approvals
and authorizations required under Environmental Laws.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended.
“Escrow Agent” means M&T Bank.
“Escrow Agreement” shall mean the form of Escrow Agreement included as Appendix D to this
Agreement.
“Escrow Amount” has the meaning set forth in the Escrow Agreement.
“Excess Amount” means has the meaning set forth in Section 2(a)(vii).
“Final Book Value of MICO” has the meaning set forth in Section 2(a)(v).
“Final Closing Balance Sheet” has the meaning set forth in Section 2(a)(v).
“Financial Statements” has the meaning set forth in Section 3(g).
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“Fundamental Representations” has the meaning set forth in Section 10(b)(ii).
“GAAP” means United States generally accepted accounting principles as in effect from time to
time.
“Governmental Authority” means any court, tribunal or government, federal, state, local,
foreign or provincial, or any political subdivision thereof, including, without limitation, any
department, commission, board, bureau, agency or other regulatory, administrative or governmental
authority or instrumentality.
“Hazardous Substances” means any chemicals or wastes which are defined as or included in the
definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely
hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” or “toxic pollutants,” under
any Environmental Law.
“Income Tax” and “Income Taxes” mean any Tax imposed on, or measured by, net income.
“Income Tax Return” means any return, declaration, report, claim for refund or information
return or statement relating to Income Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
“Indemnified Party” has the meaning set forth in Section 10(d)(i).
“Indemnifying Party” has the meaning set forth in Section 10(d)(i).
“Initial Outside Date” has the meaning set forth in Section 9(a)(ii).
“Insurance Laws” has the meaning set forth in Section 3(b).
“Intellectual Property” means all patents, patent applications, patent disclosures and
inventions; trademarks, service marks, trade dress, logos, trade names, corporate names and
Internet domain names, together with all goodwill associated therewith (including all translations,
adaptations, derivations and combinations of the foregoing); copyrights and copyrightable works;
and registrations, applications and renewals for any of the foregoing.
“Knowledge” means, with respect to MICO, the actual knowledge of Xxxxxxx X. Xxxxxx, Xxxxx X.
Xxxxxxx, Xxxxx X. Xxxxxxx, Xxxxx X. XxXxxx and Xxxxxxxx X. Xxxxxxxxx.
“Law” means any federal, state, local, domestic or foreign statute or Law, including common
law, or ordinance, rule, regulation, code, enactment or other statutory or legislative provision.
“Leased Real Property” has the meaning set forth in Section 3(p).
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“Leases” means all leases, subleases, licenses, concessions and other agreements pursuant to
which MICO holds any Leased Real Property.
“Letter of Transmittal” has the meaning set forth in Section 2(c)(ii).
“MBCA and the DGCL” means the Michigan Business Corporation Act and the Delaware General
Corporation Law.
“Merger” has the meaning set forth in Recital D.
“Merger Consideration” has the meaning set forth in Section 2(a).
“Merger Sub” has the meaning set forth in the preface.
“Merger Sub Common Stock” has the meaning set forth in Section 2(b)(ii).
“MICO” has the meaning set forth in the preface.
“MICO Disclosure Schedule” has the meaning set forth in Section 3.
“MICO Indemnified Party” and “MICO Indemnified Parties” have the meanings set forth in Section
6(e)(i).
“MICO Insurance Approvals” has the meaning set forth in Section 3(b).
“MICO Material Adverse Effect” means, any effect or change that would be materially adverse to
the business of MICO taken as a whole; provided that none of the following shall be deemed to
constitute, and none of the following shall be taken into account in determining whether there has
been, a MICO Material Adverse Effect: (i) any adverse change, event, development, or effect
arising from or relating to [a] general business or economic conditions, including such conditions
related to the business of MICO, [b] national or international political or social conditions,
including the engagement by the United States in hostilities, whether or not pursuant to the
declaration of a national emergency or war, or the occurrence of any military or terrorist attack
upon the United States, or any of its territories, possessions, or diplomatic or consular offices
or upon any military installation, equipment or personnel of the United States, [c] financial,
banking, or securities markets (including any disruption thereof and any decline in the price of
any security or any market index), [d] changes in GAAP or SAP, [e] changes in Laws, rules,
regulations, Orders, or other binding directives issued by any Governmental Authority, or [f] the
taking of any action contemplated by this Agreement and the other agreements this Agreement
contemplates, (ii) any existing event, occurrence, or circumstance with respect to which DGI has
knowledge as of the date of this Agreement, (iii) any adverse change in or effect on the business
of MICO that is cured by MICO before the earlier of [a] the Closing Date and [b] the date on which
this Agreement is terminated pursuant to Section 9 hereof, (iv) the execution and announcement
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of this Agreement and the consummation of the transactions this Agreement contemplates or
the taking of any action outside the Ordinary Course of MICO’s Business that is expressly required
by the Agreement, and (v) any failure by MICO to meet any revenue, earnings or other financial
projections or forecasts provided to DGI, in and of itself.
“MICO Permits” has the meaning set forth in Section 3(a)(i).
“MICO Reinsurance Agreements” has the meaning set forth in Section 3(n)(i).
“MICO SAP Statements” means the statutory statements of MICO as filed with the domiciliary
state insurance departments for MICO for the years ended December 31, 2007, December 31, 2008 and
December 31, 2009.
“Most Recent Balance Sheet” means the balance sheet contained within the Most Recent Financial
Statements.
“Most Recent Financial Statements” has the meaning set forth in Section 3(g).
“Most Recent Fiscal Year End” has the meaning set forth in Section 3(g).
“NSI Reinsurance Agreement” has the meaning set forth in Section 8(c)(v).
“Office of the Secretary” has the meaning set forth in Section 1(c).
“OFIR” means the Office of Financial and Insurance Regulation of the State of Michigan.
“Order” means any order, writ, injunction, decree, judgment or stipulation issued, promulgated
or entered into by or with any Governmental Authority.
“Ordinary Course of MICO’s Business” means the ordinary course of MICO’s business consistent
with past custom and practice.
“Organizational Documents” means, with respect to any Person, such Person’s articles or
certificate of incorporation and by laws, certificate of formation and limited liability company
agreement or operating agreement, trust agreement or other organizational documents, as applicable.
“Outside Date” has the meaning set forth in Section 9(a)(ii).
“Party” and “Parties” have the meanings set forth in the preface.
“Paying Agent” has the meaning set forth in Section 2(c)(i).
“Payment Fund” has the meaning set forth in Section 2(c)(i).
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“Per Share Merger Consideration” has the meaning set forth in Section 2(b)(i).
“Permitted Liens” means (i) mechanic’s, materialmen’s and similar liens, (ii) liens for Taxes
not yet due and payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (iii) purchase money liens and liens securing rental payments under
capital lease arrangements, and (vi) other liens arising in the Ordinary Course of MICO’s Business
and not incurred in connection with the borrowing of money.
“Person” means an individual, a partnership, a limited liability company, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization or a
Governmental Authority or any department, agency or political subdivision thereof.
“Plans” has the meaning set forth in Section 3(u)(i).
“Policy Reserves” means loss reserves (including incurred but not reported), allocated and
unallocated loss adjustments expense reserves, unearned premium reserves and other reserves
required to be maintained pursuant to SAP net of any related reinsurance.
“Preliminary Book Value of MICO” has the meaning set forth in Section 2(a)(ii).
“Preliminary Closing Balance Sheet” has the meaning set forth in Section 2(a)(ii).
“Preliminary Merger Consideration” has the meaning set forth in Section 2(a)(iii).
“Proposed Final Book Value of MICO” has the meaning set forth in Section 2(a)(iv).
“Purchase Price Escrow Amount” has the meaning set forth in Section 2(a)(iii).
“Release” means any release, spill, emission, leaking, injection, deposit, disposal,
discharge, dispersal, or migration into the atmosphere, soil, surface water, groundwater or
property.
“Requisite Shareholder Vote” has the meaning set forth in Section 3(a)(ii).
“SAP” means statutory accounting principles prescribed or permitted by the domiciliary state
insurance departments for MICO as in effect as of the date of this Agreement.
“Securities Act” means the Securities Act of 1933, as amended.
“Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.
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“Security Interest” means any mortgage, pledge, lien, encumbrance or other security interest,
other than Permitted Liens.
“Shareholder” and “Shareholders” have the meanings set forth in Recital A.
“Shareholders’ Agreements” means those agreements entered into by MICO and the Shareholders
related to the ownership and disposition of the Shares held by the Shareholders.
“Shareholders’ Damages” has the meaning set forth in Section 10(c).
“Special Meeting” has the meaning set forth in Section 5(g).
“SSAP No. 62” has the meaning set forth in Section 3(n)(ii).
“Straddle Period” has the meaning set forth in Section 6(d)(i).
“Subsidiary” means any corporation, limited liability company, partnership or other entity
with respect to which a specified Person, or a Subsidiary thereof owns, directly or indirectly, a
majority of the common stock or equity interests or has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors or managers, as the case may be.
“Surviving Corporation” has the meaning set forth in Section 1(a).
“Surviving Corporation Common Stock” has the meaning set forth in Section 2(b)(ii).
“Tax” or “Taxes” mean (i) all federal, state, local, foreign, and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease,
service, service use, withholding, payroll, employment, excise, severance, stamp, occupation,
premium, property, windfall profits, customs, duties or other taxes of any kind whatsoever,
together with interest and any penalties, additions to tax or additional amounts with respect
thereto, (ii) any liability for payment of amounts described in clause (i) whether as a result of
transferee liability, where such transferee status arose prior to the Effective Date, of being a
member of an affiliated, consolidated, combined or unitary group for any period beginning prior to
the Effective Date, and (iii) any liability for the payment of amounts described in clauses (i) or
(ii) as a result of any tax sharing, tax indemnity or tax allocation agreement entered into prior
to the Effective Date, excluding for this purpose any liability under a lease that passes through
expenses including Taxes.
“Tax Allocation Agreement” has the meaning set forth in Section 6(c)(vi).
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“Tax Returns” means any return, declaration, report, claim for refund or information return or
statement relating to Taxes, including any schedule or attachment thereto, and including any
amendment thereof.
“Tax Statement” has the meaning set forth in Section 6(d)(vi).
“Third Party Claim” has the meaning set forth in Section 10(d)(ii).
“Transaction Approvals” has the meaning set forth in Section 4(c).
“Unrelated Accounting Firm” means an independent public accounting firm acceptable to both DGI
and MICO.
“WBM” has the meaning set forth in the preface.
“WBM Reinsurance Agreements” have the meaning set forth in Section 8(c)(iv).
(b) Other Terms. Other terms may be defined elsewhere in the text or this Agreement
and, unless otherwise indicated, shall have such meaning indicated throughout this Agreement.
(c) Other Definitional Provisions.
(i) The words “hereof,” “herein,” and “hereunder” and words of similar import, when used in
this Agreement, shall refer to this Agreement as a whole and not to any particular provision of
this Agreement.
(ii) The terms defined in the singular shall have a comparable meaning when used in the
plural, and vice versa.
(iii) The term “including” shall mean “including, without limitation.”
(iv) The terms “dollars” and “$” shall mean United States dollars.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement and Plan of Merger as of
the date first written.
MICHIGAN INSURANCE COMPANY | ||||
By: | /s/ Xxxxx X. Xxxxxxx | |||
Xxxxx X. Xxxxxxx, President | ||||
DONEGAL GROUP INC. |
||||
By: | /s/ Xxxxxx X. Xxxxxxxx | |||
Xxxxxx X. Xxxxxxxx, President | ||||
DGI ACQUISITION CORP. |
||||
By: | /s/ Xxxxxx X. Xxxxxxxx | |||
Xxxxxx X. Xxxxxxxx, President | ||||
WEST BEND MUTUAL INSURANCE COMPANY |
||||
By: | /s/ Xxxxx X. Xxxxxxx | |||
Xxxxx X. Xxxxxxx, President |
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