Exhibit 10 (AA)
STOCK PURCHASE AGREEMENT
Between
DONEGAL GROUP INC.
and
FOLKSAMERICA HOLDING COMPANY, INC.
Relating to the
Capital Stock
of
PENINSULA INSURANCE COMPANY
and
PENINSULA INDEMNITY COMPANY
TABLE OF CONTENTS
RECITALS 1
ARTICLE I - DEFINITIONS....................................................................................... 1
1.1 Definitions........................................................................................ 1
ARTICLE II - REPRESENTATIONS, WARRANTIES AND
AGREEMENTS OF THE SELLER................................................................................... 7
2.1 Organization....................................................................................... 7
2.2 Subsidiaries....................................................................................... 8
2.3 Authority.......................................................................................... 8
2.4 Capital Structure.................................................................................. 8
2.5 No Distributions on Capital Stock.................................................................. 9
2.6 Financial Statements; Examinations................................................................. 9
2.7 Material Changes Since December 31, 2002........................................................... 10
2.8 Availability of Assets and Legality of Use......................................................... 10
2.9 Title to Property.................................................................................. 10
2.10 Books and Records.................................................................................. 11
2.11 Accounts Receivable................................................................................ 11
2.12 Compliance with Legal Requirements; Governmental Authorizations.................................... 11
2.13 Real Property and Leases........................................................................... 12
2.14 Insurance.......................................................................................... 12
2.15 Conduct of Business................................................................................ 13
2.16 No Undisclosed Liabilities......................................................................... 14
2.17 No Default or Litigation........................................................................... 14
2.18 Tax Liabilities.................................................................................... 14
2.19 Contracts.......................................................................................... 15
2.20 Employee Agreements................................................................................ 15
2.21 Employee Relations................................................................................. 16
2.22 Employee Retirement Income Security Act............................................................ 16
2.23 Conflicts; Sensitive Payments...................................................................... 17
2.24 Corporate Names.................................................................................... 17
2.25 Trademarks and Proprietary Rights.................................................................. 17
2.26 Environmental Matters.............................................................................. 18
2.27 Insurance Issued by the Companies.................................................................. 19
2.28 Health and Safety Matters.......................................................................... 19
2.29 No Omissions....................................................................................... 20
2.30 Finders............................................................................................ 20
2.31 Representations and Warranties to Be True on the Closing Date...................................... 20
ARTICLE III - REPRESENTATIONS, WARRANTIES AND AGREEMENTS
OF DGI 20
3.1 Organization of DGI................................................................................ 21
3.2 Corporate Authority................................................................................ 21
3.3 Finders............................................................................................ 21
3.4 Representations and Warranties to be True on the Closing Date...................................... 21
ARTICLE IV - ACTION PRIOR TO THE CLOSING DATE................................................................. 21
4.1 Investigation of the Companies..................................................................... 21
4.2 Confidential Nature of Information................................................................. 22
4.3 Preserve Accuracy of Representations and Warranties................................................ 22
4.4 Maintain the Companies As Going Concerns........................................................... 23
4.5 Make No Material Change in the Companies........................................................... 23
4.6 No Public Announcement............................................................................. 23
4.7 Antitrust Law Compliance........................................................................... 24
4.8 Required Filings................................................................................... 24
ARTICLE V - ADDITIONAL COVENANTS OF THE SELLER................................................................ 24
5.1 Non-Disclosure and Non-Solicitation................................................................ 24
5.2 Use of Trademarks.................................................................................. 25
5.3 Use of Name........................................................................................ 25
5.4 Loss and Adjusting Reserves Guarantee.............................................................. 25
5.5 Substitution of Securities......................................................................... 28
5.6 Reinsurance Guarantee.............................................................................. 28
5.7 Suspension of Dividends............................................................................ 28
5.8 Property Casualty Reinsurance Agreement............................................................ 28
ARTICLE VI - PURCHASE PRICE AND CLOSING....................................................................... 29
6.1 Closing Date....................................................................................... 29
6.2 Purchase and Sale.................................................................................. 29
6.3 Delivery by the Seller............................................................................. 30
6.4 Delivery by DGI.................................................................................... 30
ARTICLE VII - CONDITIONS PRECEDENT TO OBLIGATIONS OF DGI...................................................... 30
7.1 No Misrepresentation or Breach of Covenants and Warranties......................................... 31
7.2 No Changes in or Destruction of Property........................................................... 31
7.3 Legal Matters...................................................................................... 31
7.4 Additional Claims.................................................................................. 32
7.5 Resignations....................................................................................... 32
7.6 Employment Agreements.............................................................................. 32
7.7 Items to be Received by DGI........................................................................ 32
7.8 Minimum Companies Surplus.......................................................................... 33
ARTICLE VIII - CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE SELLER................................................................................................. 33
8.1 No Misrepresentation or Breach of Covenants and Warranties......................................... 33
8.2 Legal Matters...................................................................................... 33
ARTICLE IX - TERMINATION...................................................................................... 34
9.1 Termination........................................................................................ 34
9.2 Effect of Termination.............................................................................. 34
ARTICLE X - AMENDMENT, WAIVER AND INDEMNIFICATION............................................................. 35
10.1 Amendment.......................................................................................... 35
10.2 Extension; Waiver.................................................................................. 35
10.3 Survival of Obligations............................................................................ 35
10.4 Indemnification.................................................................................... 36
10.5 Tax Matters........................................................................................ 38
ARTICLE XI - MISCELLANEOUS.................................................................................... 40
11.1 Notices............................................................................................ 40
11.2 Expenses........................................................................................... 41
11.3 Governing Law; Jurisdiction and Service of Process................................................. 41
11.4 Successors and Assigns............................................................................. 42
11.5 Partial Invalidity................................................................................. 42
11.6 Execution in Counterparts.......................................................................... 42
11.7 Titles and Headings................................................................................ 42
11.8 Schedules.......................................................................................... 43
11.9 Entire Agreement................................................................................... 43
SIGNATURES 43
SCHEDULES:
2.1 - Jurisdictions of Admission of the Companies
2.6(C) - Reports of Examination
2.6(E) - Bank Accounts of the Companies
2.7 - Material Changes Since December 31, 2002
2.12 - Compliance Exceptions
2.13(A) - Real Estate Owned
2.13(B) - Leases
2.14 - Insurance
2.15 - Pending and Threatened Claims
2.17 - Defaults or Litigation
2.18 - Tax Sharing
2.19 - Contracts
2.20 - Employee Agreements
2.21 - Employee Compensation
2.23 - Conflicts, Sensitive Payments
2.25 - Trademarks and Proprietary Rights
2.26 - Underground Storage Tanks
2.27 - Assumed Reinsurance
2.28 - Health and Safety Matters
4.5 - Material Changes ; Reserve Policy
5.8 - Property Casualty Reinsurance Agreement
7.6 - Form of Employment Agreement
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") made and entered into
as of the 28th day of October 2003 between DONEGAL GROUP INC., a Delaware
corporation ("DGI") and FOLKSAMERICA HOLDING COMPANY, INC., a New York
corporation (the "Seller") that owns all of the issued and outstanding shares
(the "PIC-1 Shares") of capital stock of THE PENINSULA INSURANCE COMPANY, a
Maryland property and casualty insurance company ("PIC-1") that owns all of the
issued and outstanding shares (the "PIC-2 Shares" and together with the PIC-1
Shares, the "Shares") of PENINSULA INDEMNITY COMPANY, a Maryland property and
casualty insurance company ("PIC-2", and together with PIC-1, the "Companies").
WITNESSETH:
WHEREAS, the Seller owns all of the PIC-1 Shares and PIC-1 owns all of
the PIC-2 Shares;
WHEREAS, the Seller desires to sell the PIC-1 Shares to DGI pursuant to
the terms and conditions set forth in this Agreement;
WHEREAS, DGI desires to purchase the PIC-1 Shares from the Seller on
the terms and conditions set forth in this Agreement; and
WHEREAS, by virtue of acquiring the PIC-1 Shares, DGI will also acquire
indirect ownership of the PIC-2 Shares;
NOW, THEREFORE, DGI and the Seller, in consideration of the agreements,
covenants and conditions contained herein, hereby make the following
representations and warranties, give the following covenants and agree as
follows:
Article I
DEFINITIONS
1.1 Definitions. When used in this Agreement, the following words or
phrases have the following meanings:
"Affiliate" shall mean a Person that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common
control with another Person. For purposes of this definition, "control",
including the terms "controlling" and "controlled", means the power to direct or
cause the direction of the management and policies of a Person, directly or
indirectly, whether through the ownership of securities or partnership or other
ownership interests, by contract or otherwise.
"Agreement" shall have the meaning ascribed to it in the preamble.
"Annual Statements" shall mean the annual statements of condition and
affairs filed by an insurance company pursuant to the Maryland Insurance Law.
"Assets" shall mean as to each of the Companies all rights, titles,
franchises and interests in and to every species of property, real, personal and
mixed, tangible and intangible, and things in action relating thereto,
including, without limitation, cash and cash equivalents, securities, including,
without limitation, exempted securities under the Securities Act of 1933, as
amended (the "Securities Act"), receivables, recoverables from reinsurance and
otherwise, deposits and advances, loans, agents balances, real property,
together with buildings, structures and the improvements thereon, fixtures
contained therein and appurtenances thereto and easements and other rights
relating thereto, machinery, equipment, furniture, fixtures, leasehold
improvements, vehicles and other assets or property, leases, licenses, permits,
approvals, authorizations, joint venture agreements, contracts or commitments,
whether written or oral, policy forms, training materials, underwriting manuals,
lists of policyholders and agents, processes, trade secrets, know-how, computer
software, computer programs and source codes, protected formulae, all other
Intellectual Property, research, goodwill, prepaid expenses, books of account,
records, files, invoices, data, rights, claims and privileges and any other
assets whatsoever.
"Closing" and "Closing Date" shall have the respective meanings set
forth in Section 6.1.
"COBRA" shall mean the requirements of Part 6 of Subtitle B of Title I
of ERISA and Section 4980B of the Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commissioner of Insurance" shall mean the Commissioner of Insurance of
the State of Maryland.
"Companies" shall have the meaning ascribed to it in the preamble.
"Company Adverse Effect" shall mean a material adverse effect on the
Condition of either of the Companies other than resulting from general economic
or financial conditions that does not affect either of the Companies uniquely.
"Company Property" shall mean any property on which either of the
Companies holds a Lien or any facility that is owned or leased by either of the
Companies or in the management of which either of the Companies actively
participates.
"Condition" shall mean, as to a Person, the financial condition,
business, results of operations, prospects and the properties or other Assets of
such Person.
"Contract" shall mean a contract, indenture, bond, note, mortgage, deed
of trust, lease, agreement or commitment, whether written or oral, including,
without limitation, an Insurance Contract.
"DGI" shall have the meaning ascribed to it in the preamble.
"Environmental Claim" shall mean any written notice by a Person
alleging actual or potential Liability, including, without limitation, potential
Liability for any investigatory cost, cleanup cost, governmental response cost,
natural resources damage, property damage, personal injury or penalty, arising
out of, based on or resulting from (a) the presence, transport, disposal,
discharge or release, of any Materials of Environmental Concern at any location,
whether or not owned by either of the Companies, as the case may be, or (b)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law.
"Environmental Law" shall mean all federal, state, local and foreign
Laws relating to pollution or protection of human health or the environment,
including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata, including, without limitation, Laws relating to
emissions, discharges, releases or threatened releases, the presence of
Materials of Environmental Concern or otherwise relating to the manufacture,
processing, distribution, use, existence, treatment, storage, disposal,
transport, recycling, reporting or handling of Materials of Environmental
Concern.
"Employee Welfare Plan" shall have the meaning as set forth in Section
3(1) of ERISA.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to either of the Companies,
any trade or business that together with either of the Companies would be deemed
a "single employer" within the meaning of Section 4001(a)(14) of ERISA.
"Financial Statements" shall mean statements of financial condition and
statements of operations and changes in surplus, and the footnotes, schedules,
exhibits and other attachments thereto.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Entity" shall mean a court, legislature, governmental
agency, commission or administrative or regulatory authority or instrumentality,
domestic or foreign.
"Hazardous Materials" shall mean any (i) "hazardous substance,"
"pollutants," or "contaminant" (as defined in Sections 101(14) and (33) of the
United States Comprehensive Environmental Response, Compensation, and Liability
Act, as amended ("CERCLA") or the regulations issued pursuant to Section 102 of
CERCLA, including any element, compound, mixture, solution or substance that is
or may be designated pursuant to Section 102 of CERCLA; (ii) substance that is
or may be designated pursuant to Section 311(b)(2)(A) of the Federal Water
Pollution Control Act, as amended ("FWCPA"); (iii) hazardous waste having the
characteristics identified under or listed pursuant to Section 3001 of the
Resource Conservation and Recovery Act, as amended ("RCRA") or having the
characteristics that may subsequently be considered under RCRA to constitute a
hazardous waste; (iv) substance containing petroleum, as that term is defined in
Section 9001(8) of RCRA; (v) toxic pollutant that is or may be listed under
Section 307(a) of FWPCA; (vi) hazardous air pollutant that is or may be listed
under Section 112 of the Clean Air Act, as amended; (vii) imminently hazardous
chemical substance or mixture with respect to which action has been or may be
taken pursuant to Section 7 of the Toxic Substance Control Act, as amended;
(viii) source, special nuclear, or by-product material as defined by the Atomic
Energy Act of 1954, as amended; (ix) asbestos-containing material, or urea
formaldehyde or material that contains it; (x) waste oil and other petroleum
products and (xi) any other toxic materials, contaminants or hazardous
substances or wastes pursuant to any Environmental Law.
"Health and Safety Requirements" shall mean all federal, state, local
and foreign statutes, regulations, ordinances and other provisions having the
force and effect of Law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, including without limitation those
relating to the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, labeling, testing, processing, discharge, release,
threatened release, control or cleanup of any hazardous materials, substances or
wastes, chemical substances or mixtures, pesticides, pollutants, contaminants,
toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated
biphenyls or noise, each as amended and as now or hereafter in effect.
"Insurance Contract" shall mean any Contract of insurance including,
without limitation, reinsurance contracts issued by either of the Companies.
"Insurance License" shall mean a License granted by a Governmental
Entity to transact an insurance or reinsurance business.
"Intellectual Property" shall mean (i) all inventions whether
patentable or unpatentable and whether or not reduced to practice, all
improvements thereof and all patents, applications and patent disclosures,
together with all reissuance, continuations, continuations-in-part, revisions,
extensions and reexaminations thereof; (ii) all trademarks, service marks, trade
dress, logos, trade names and corporate names, together with all translations,
adaptations, derivations and applications, registrations and renewals in
connection therewith; (iii) all copyrightable works, all copyrights and all
applications, registrations and renewals in connection therewith; (iv) all mask
works and all applications, registrations and renewals thereof; (v) all trade
secrets and confidential business information including ideas, research and
development, know-how, formulas, data, designs, drawings, specifications, policy
forms, training materials, underwriting manuals, pricing and cost information
and business and marketing plans and proposals; (vi) all computer software
including data and related documentation; (vii) all other proprietary rights and
(vii) all copies and tangible embodiments thereof in whatever form or medium.
"Investment Assets" shall mean bonds, notes, debentures, mortgage
loans, collateral loans and all other instruments of indebtedness, stocks,
partnership interests and other equity interests, real estate and leasehold and
other interests therein, certificates issued by or interests in trusts, cash on
hand and on deposit, personal property and interests therein and all other
Assets acquired for investment purposes.
"IRS" shall mean the Internal Revenue Service.
"Knowledge" shall mean the knowledge of the relevant Person, after due
inquiry by the appropriate officer or officers.
"Law" shall mean a law, ordinance, rule or regulation enacted or
promulgated, or an Order issued or rendered, by any Governmental Entity.
"Liability" shall mean a liability, obligation, claim or cause of
action of any kind or nature whatsoever, whether absolute, accrued, contingent
or other and whether known or unknown, including, without limitation, any
liability, obligation, claim or cause of action arising as a result of an
Insurance Contract.
"License" shall mean a license, certificate of authority, permit or
other authorization to transact an activity or business issued or granted by a
Governmental Entity.
"Lien" shall mean a lien, mortgage, deed to secure debt, pledge,
security interest, lease, sublease, charge, levy or other encumbrance of any
kind.
"Losses" shall mean losses, claims, damages, costs, expenses,
Liabilities and judgments, including, without limitation, court costs and
attorneys' fees.
"Maryland Insurance Law" shall mean the Insurance Article of the
Annotated Code of Maryland, as amended, and the regulations promulgated
thereunder.
"Officers' Certificate" shall mean, with respect to any Person, a
certificate executed by the President or an appropriate Vice President of such
Person, as attested by the Secretary or an Assistant Secretary of such Person.
"Order" shall mean an order, writ, ruling, judgment, injunction or
decree of, or any stipulation to or agreement with, any arbitrator, mediator or
Governmental Entity.
"Ordinary Course of Business" shall mean an action taken by a Person
if: (i) such action is consistent with the past practices of such Person and is
taken in the ordinary course of the normal day-to-day operations of such Person;
(ii) such action is not required to be authorized by the board of directors of
such Person or by any Person or group of Persons exercising similar authority or
by a parent company and (iii) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of directors
or by any Person or group of Persons exercising similar authority or by a parent
company, in the ordinary course of the normal day-to-day operations of other
Persons that are in the same line of business as such Person.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor entity.
"Permitted Liens" shall mean as to either of the Companies, (i) all
Liens disclosed in a schedule attached hereto, (ii) statutory Liens arising out
of operation of Law with respect to a Liability incurred in the Ordinary Course
of Business and that is not delinquent and can be paid without interest or
penalty or (iii) such Liens and other imperfections of title as do not
materially detract from the value or impair the use of the property subject
thereto.
"Person" shall mean an individual, corporation, partnership,
association, joint stock company, Governmental Entity, business trust,
unincorporated organization or other legal entity.
"PIC-1" shall have the meaning assigned to it in the preamble.
"PIC-1 Shares" shall have the meaning assigned to it in the preamble.
"PIC-2" shall have the meaning assigned to it in the preamble.
"PIC-2 Shares" shall have the meaning assigned to it in the preamble.
"Proceedings" shall mean actions, suits, hearings, claims and other
similar proceedings.
"Quarterly Statements" shall mean the quarterly statements of condition
and affairs filed by an insurance company pursuant to the Maryland Insurance
Law.
"Required Filings and Approvals" shall mean the filing of this
Agreement with and the approval of such by the Commissioner of Insurance, and
such other applications, registrations, declarations, filings, authorizations,
Orders, consents and approvals as may be required to be made or obtained prior
to consummation of the transactions contemplated hereby under the insurance Laws
of any jurisdiction.
"SAP" shall mean statutory accounting practices as prescribed or
permitted by the Commissioner of Insurance and the National Association of
Insurance Commissioners subject, in the case of unaudited interim Financial
Statements, to normal year-end adjustments.
"Seller" shall have the meaning assigned to it in the preamble.
"Shares" shall have the meaning ascribed to it in the preamble.
"Subsidiary" of a Person means any Person with respect to whom such
specified Person, directly or indirectly, beneficially owns 50% or more of the
equity interests in, or holds the voting control of 50% or more of the equity
interests in, such Person.
"Taxes" shall mean all income, gross income, gross receipts, premium,
sales, use, transfer, franchise, profits, withholding, payroll, employment,
excise, severance, property and windfall profits taxes, and all other taxes,
assessments or similar charges of any kind whatsoever thereon or applicable
thereto, together with any interest and any penalties, additions to tax or
additional amounts, in each case imposed by any taxing authority, domestic or
foreign, upon either of the Companies, including, without limitation, all such
amounts imposed as a result of being a member of an affiliated or combined
group.
"Tax Returns" or "Returns" shall mean all Tax returns, declarations,
reports, estimates, information returns and statements required to be filed
under federal, state, local or foreign Laws.
Article II
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE SELLER
As an inducement to DGI to enter into this Agreement and to consummate
the transactions contemplated herein, the Seller represents and warrants to DGI
and agrees as follows:
2.1 Organization.
(a) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York.
(b) Each of the Companies is a stock property and casualty insurance
company duly organized, validly existing and in good standing under the laws of
the State of Maryland and is duly admitted to transact an insurance business as
a foreign insurance company and is in good standing in the jurisdictions listed
in Schedule 2.1, which are the only jurisdictions in which the failure of either
of the Companies to be admitted would have a Company Adverse Effect on either of
the Companies.
(c) Each of the Companies has the corporate power and authority and
other authorizations necessary or required in order for it to own or lease and
operate its Company Property and to carry on its business as now conducted.
2.2 Subsidiaries. PIC-1 has no subsidiaries other than PIC-2, and PIC-2 has
no subsidiaries.
2.3 Authority. This Agreement and the transactions contemplated herein have
been duly approved by all necessary corporate action on the part of each of the
Companies and the Seller. This Agreement, when executed and delivered by the
Seller and assuming the due execution hereof by DGI, will constitute the valid,
legal and binding agreement of the Seller enforceable in accordance with its
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights and to
general principles of equity. Neither the execution nor the delivery of this
Agreement nor the consummation of the transactions contemplated herein, nor
compliance with nor fulfillment of the terms and provisions hereof, will (i)
conflict with or result in a breach of the terms, conditions or provisions of or
constitute a default under the Certificate of Incorporation or By-laws of either
of the Companies or the Seller, any instrument, agreement, mortgage, judgment,
order, award, decree or other restriction to which either of the Companies or
the Seller is a party or by provisions affecting any of them; (ii) give any
party to or with rights under any such instrument, agreement, mortgage,
judgment, order, award, decree or other restriction the right to terminate,
modify or otherwise change the rights or obligations of either of the Companies
under such instrument, agreement, mortgage, judgment, order, award, decree or
other restriction or (iii) require the approval, consent or authorization of or
any filing with or notification to any federal, state or local court,
Governmental Entity, except (y) the Required Filings and Approvals and (z) such
conflicts, breaches, defaults, rights or approvals which, individually or in the
aggregate, do not have a Company Adverse Effect on either of the Companies. The
Seller has full power and authority to sell, assign, transfer and deliver the
PIC-1 Shares to DGI pursuant to this Agreement and each of the Companies and
Seller has full power and authority to do and perform all acts and things
required to be done by each of the Companies and the Seller under this
Agreement. True and complete copies of the Certificate of Incorporation and
By-laws of each of the Companies and the Seller have been delivered to DGI.
2.4 Capital Structure.
(a) The authorized capital stock of PIC-1 consists of 1,000,000 shares
of common stock, par value $4.00 per share, of which 263,000 shares are issued
and outstanding, and all of which are owned by the Seller and none of which are
held by PIC-1 as treasury shares.
(b) The authorized capital stock of PIC-2 consists of 150,000 shares
of common stock, par value $10.00 per share , all of which shares are issued and
outstanding and all of such shares are owned by the Seller, and none of which
are held by PIC-2 as treasury shares.
(c) Except for this Agreement, there are no agreements, arrangements,
options, warrants or other rights or commitments of any character relating to
the issuance, transfer, sale, purchase or redemption of any shares of capital
stock of either of the Companies, and no such agreements, arrangements, options,
warrants or other rights or commitments will be entered into or granted between
the date hereof and the Closing Date. All of the outstanding shares of both of
the Companies are validly issued, fully paid and nonassessable with no liability
attaching to the ownership thereof, and are owned of record and beneficially by
the Seller in the case of PIC-1 and by PIC-1 in the case of PIC-2, free and
clear of any liens, claims, encumbrances and restrictions of any kind; and the
transfer and delivery of the outstanding PIC-1 Shares to DGI by the Seller as
contemplated by this Agreement will be sufficient to transfer good and
marketable record and beneficial title to all of the outstanding PIC-1 Shares to
DGI, free and clear of liens, claims, encumbrances and restrictions of any kind
and, at the Closing, PIC-1 will have good and marketable record and beneficial
title to all of the outstanding PIC-2 Shares, free and clear of liens, claims,
encumbrances and restrictions of any kind.
2.5 No Distributions on Capital Stock. Neither of the Companies has ever
purchased or redeemed any shares of its outstanding capital stock and, since
December 31, 2002, neither of the Companies has declared or paid any dividend or
made any other distribution in respect of its capital stock.
2.6 Financial Statements; Examinations.
(a) Each of the Companies has furnished to DGI its balance sheet as of
December 31, 2002 and the related statement of operations and of changes in
financial position for the year then ended (the "Annual Financial Statements"),
together with appropriate notes to such financial statements and its balance
sheets and the related statements of operations and of changes in financial
position for the six months ended June 30, 2003 (the "Interim Financial
Statements" and together with the Annual Financial Statements, the "Company
Financial Statements"). The Annual Financial Statements are accompanied by the
reports thereon by PricewaterhouseCoopers LLP, independent certified public
accountants. The Company Financial Statements are correct and complete in all
material respects and fairly present the financial position of each of the
Companies as at the respective dates thereof and the results of its operations
and the changes in its financial position for the respective periods covered
thereby, and have been prepared in conformity with accounting principles and
practices prescribed or permitted by the Insurance Department of the State of
Maryland consistently applied throughout all periods.
(b) Each of the Company Financial Statements was in compliance in all
material respects with applicable Law when filed.
(c) The most recently completed reports of examination of each of the
Companies conducted by any insurance Governmental Entities was for the periods
set forth in Schedule 2.6(C), and each of the Companies has furnished DGI with a
complete and correct copy of such reports.
(d) Since the dates of all examinations referred to in Section 2.6(c),
neither of the Companies has been the subject of further examination by any
insurance Governmental Entity, and neither of the Companies is currently
undergoing examination by any insurance Governmental Entity.
(e) Schedule 2.6(E) sets forth a correct and complete list of all (i)
accounts, borrowing resolutions and deposit boxes maintained by each of the
Companies at any bank or other financial institution, (ii) the names of the
persons authorized to sign or otherwise act with respect thereto and (iii)
powers of attorney for each of the Companies with respect thereto.
2.7 Material Changes Since December 31, 2002. Except as described in
Schedule 2.7, since December 31, 2002, the business of each of the Companies has
been operated only in the ordinary course and, whether or not in the Ordinary
Course of Business, other than as disclosed in this Agreement or the schedules
referred to herein and there has not been, occurred or arisen (i) any material
adverse change in the Condition of each of each of the Companies from that shown
on its balance sheet as of December 31, 2002 referred to in Section 2.6; (ii)
any damage or destruction in the nature of a casualty loss, whether covered by
insurance or not, to any Company Property which is material to the financial
condition, operations or business of either of the Companies taken as a whole;
(iii) any material increase in any employee benefit plan listed in Section 2.19;
(iv) any amendment or termination of any agreement, or cancellation or reduction
of any debt owing to either of the Companies or waiver or relinquishment of any
right of material value to either of the Companies or (v) any other event,
condition or state of facts of any character that would constitute a Company
Adverse Effect as to either of the Companies.
2.8 Availability of Assets and Legality of Use. The Assets owned or leased
by each of the Companies constitute all of the Assets that are being used by it
in its business, and such Assets are in good and serviceable condition, normal
wear and tear excepted, and suitable and adequate for the uses for which
intended and such Assets and their uses conform in all material respects to all
applicable Laws. Such Assets will be sufficient for the continued conduct of
each of the Companies' business immediately after the Closing in substantially
the same manner as each of the Companies' business was conducted immediately
prior to the Closing.
2.9 Title to Property. Each of the Companies has good and marketable title
to all of its Assets, including the Assets reflected on its December 31, 2002
balance sheet referred to in Section 2.6 and all of the Assets thereafter
acquired by it, except to the extent that such Assets have thereafter been
disposed of for fair value in the Ordinary Course of Business.
2.10 Books and Records. The books of account, minute books, stock record
books and other records of each of the Companies, all of which have been made
available to DGI, are complete and correct and have been maintained in
accordance with sound business practices and the requirements of the Maryland
Insurance Law. Since January 1, 1997, the minute books of each of the Companies
contain accurate and complete records of all meetings held of, and corporate
action taken by, the stockholders, the board of directors and committees of the
board of directors of each of the Companies, and no meeting of any such
stockholders, board of directors or committees thereof has been held for which
minutes have not been prepared and are not contained in such minute books. At
the Closing, all of the aforementioned books and records will be in the
possession of PIC-1 and PIC-2, respectively.
2.11 Accounts Receivable. All accounts receivable reflected on the December
31, 2002 balance sheet of each of the Companies referred to in Section 2.6 that
have not collected at the date hereof, have arisen from bona fide transactions
in the Ordinary Course of Business. None of such receivables is subject to
counterclaims or set-offs or is in dispute and all of such accounts are good and
collectable in the Ordinary Course of Business at the aggregate recorded amounts
thereof, subject in each case to the allowance for possible losses shown on such
balance sheet. All accounts receivable existing on the Closing Date will be good
and collectible in the Ordinary Course of Business at the aggregate recorded
amounts thereof, net of any applicable allowance for doubtful accounts, which
allowance will be determined on a basis consistent with the basis used in
determining the allowance for doubtful accounts reflected in the December 31,
2002 balance sheet of each of the Companies referred to in Section 2.6.
2.12 Compliance with Legal Requirements; Governmental Authorizations.
Schedule 2.12 hereto contains a complete and accurate list of each license to
transact insurance in a state and each other material license, permit and other
authorization held by each of the Companies in the operation of its business.
Except as set forth in Schedule 2.12:
(a) Each of the Companies is, and at all times since January 1, 1997
has been, in compliance in all material respects with the Maryland Insurance
Law, and all other Laws that are applicable to it or to the conduct or operation
of its business or the ownership or use of any of the Assets or Company Property
of each of the Companies.
(b) No event has occurred or circumstance exists that with or without
notice or lapse of time (i) may constitute or result in a violation by either of
the Companies of, or a failure on the part of either of the Companies to comply
with, any Law in any material respect or (ii) may give rise to any material
obligation on the part of either of the Companies to undertake, or to bear all
or any portion of the cost of, any remedial action of any nature.
(c) Neither of the Companies has received, at any time since January
1, 1997, any oral or written notice or other communication from any Governmental
Entity or any other Person regarding (i) any actual, alleged, possible or
potential violation of, or failure to comply with, any Law in any material
respect or (ii) any actual, alleged, possible or potential material obligation
which may give rise on the part of either of the Companies to undertake, or to
bear all or any portion of the cost of, any material remedial action of any
nature.
(d) Each of the Companies possesses all material licenses, permits and
other authorizations necessary to own or lease and operate its properties and to
conduct its business as now conducted and each of the agents of each of the
Companies is duly licensed as such. All of such licenses, permits and
authorizations of each of the Companies and such agents' appointments are
hereinafter collectively called the "Permits." All Permits are in full force and
effect and will continue in effect after the date hereof and the Closing Date
without the consent, approval or act of, or the making of any filing with, any
Governmental Entity other than (i) the Required Filings and Approvals and (ii)
as provided under the HSR Act. Each of the Companies is, and at all times since
January 1, 1997 has been in material compliance with all terms and requirements
of each Permit. Neither of the Companies is, nor, to the Knowledge of the
Seller, any of the agents of either of the Companies is in material violation of
the terms of any Permit, and neither of the Companies has received notice of any
violation or claimed violation thereunder. All applications required to have
been filed by either of the Companies for the renewal of any and all Permits
have been duly filed on a timely basis with the appropriate Governmental Entity,
and all other filings required to have been made by either of the Companies with
such Governmental Entities with respect to the Permits have been duly made on a
timely basis.
2.13 Real Property and Leases. Neither of the Companies owns any real
property except as set forth on Schedule 2.13(A). Schedule 2.13(B) includes true
and correct copies of every lease or agreement under which either of the
Companies is lessee or sublessee of, or holds or operates, any real property
owned by any third party. Each of such leases and agreements is in full force
and effect and constitutes a legal, valid and binding obligation of PIC-1 or
PIC-2, as the case may be, and, to the Knowledge of the Seller, the other
parties thereto. Neither of the Companies is in default in any material respect
under any such lease or agreement nor has any event occurred that with the
passage of time or giving of notice or both would constitute such a default and
neither of the Companies will take any action or fail to take required action
between the date hereof and the Closing Date that would permit any such default
or event to occur. Except as set forth on Schedule 2.13(B), none of such leases
and agreements requires the consent of any party thereto in order to undertake
or consummate the transactions contemplated by this Agreement.
2.14 Insurance.
(a) Each of the Companies maintains policies of fire and casualty,
product and other liability and other forms of insurance in such amounts and
against such risks and losses as are adequate and reasonable for its business
and properties and are sufficient for compliance with all Laws applicable to
each of the Companies. All such policies are valid, duly issued and enforceable
in accordance with their respective terms and conditions. Schedule 2.14 contains
a list and an accurate description of all policies of insurance that are or were
owned, held or maintained by or for the benefit of either of the Companies or
under which either of the Companies is or was a named insured as of the date
hereof, including policy numbers, nature of coverage, limits, deductibles,
carriers, premiums and effective and termination dates, under which either of
the Companies has any remaining coverage. Both of the Companies have complied
with each of such policies and has not failed to give any notice or present any
known claim thereunder. Each of the Companies will keep such insurance in full
force and effect through the Closing Date. Neither of the Companies has
received, and to the Knowledge of the Seller after due inquiry, no event or
omission has occurred that may cause it to receive, notice that any such
policies will be cancelled or will be reduced in amount or scope. True and
complete copies of all such policies have been delivered to DGI.
(b) The Seller represents that there are no claims pending against
either of the Companies under any insurance policies under which either of the
Companies is a named insured and that, in the event that a claim were to arise
at anytime that may be covered by such an insurance policy, then the Seller will
assist DGI in submitting a claim to the former insurance carriers of the
Companies.
2.15 Conduct of Business.
(a) Schedule 2.15 lists all claims arising in other than the Ordinary
Course of Business that are pending or to the Knowledge of the Seller threatened
against either of the Companies and correctly sets forth the data reflected
therein.
(b) The aggregate actuarial reserves and other actuarial amounts held
in respect of Liabilities with respect to Insurance Contracts of each of the
Companies as established or reflected in its December 31, 2002 Annual Statement
and in its Annual Financial Statements as of December 31, 2002: (i) were
determined in accordance with sound actuarial standards consistently applied,
(ii) were fairly stated in accordance with sound actuarial principles, (iii)
were based on actuarial assumptions that are in accordance with those specified
in the related Insurance Contracts, (iv) met the requirements of the insurance
Laws of the applicable jurisdiction in all material respects and (v) to the
Knowledge of the Seller, were adequate to cover the total amount of all
reasonably anticipated matured and unmatured Liabilities of each of the
Companies under all outstanding Insurance Contracts pursuant to which either of
the Companies has any Liability.
(c) All outstanding insurance coverage issued by each of the Companies
is, to the extent required by applicable Law, on forms and at rates approved by
the insurance regulatory authority of the jurisdiction where issued or has been
filed with and not objected to by such authority within the period provided for
objection. Neither of the Companies has exceeded any authority granted to it by
any party to bind it in connection with its business.
2.16 No Undisclosed Liabilities. Neither of the Companies is subject to any
material Liability, including, to the Seller's Knowledge, unasserted claims,
absolute or contingent, that is not shown or that is in excess of amounts shown
or reserved for in the December 31, 2002 balance sheet referred to in Section
2.6, other than Liabilities of the same nature as those set forth in such
balance sheet and reasonably incurred in the Ordinary Course of Business after
December 31, 2002.
2.17 No Default or Litigation. Except as set forth in Schedule 2.17,
neither of the Companies is in default in any material respect under any
agreement, lease or other document to which it is a party. Except as set forth
and described in Schedules 2.15 and 2.17, there are no lawsuits, proceedings,
claims or governmental investigations pending or, to the Knowledge of the
Seller, threatened against either of the Companies or against the properties or
business thereof that might, individually or in the aggregate, have a Company
Adverse Effect on either of the Companies and the Seller knows of no factual
basis for any such lawsuit, proceeding, claim or investigation and there is no
action, suit, proceeding or investigation pending, threatened or contemplated
that questions the legality, validity or propriety of the transactions
contemplated by this Agreement.
2.18 Tax Liabilities. The amounts reflected as liabilities for Taxes on the
December 31, 2002 balance sheet referred to in Section 2.6 are sufficient for
the payment of all Taxes of the Companies accrued for or applicable to the
period ended on such balance sheet date and all years and periods prior thereto.
All Tax Returns that are required to be filed by or in respect of either of the
Companies up to and including the date hereof have been filed and all Taxes,
including any interest and penalties thereon, that have become due pursuant to
such Returns or pursuant to any assessment have been paid and no extension of
the time for filing of any such return is presently in effect. All such Returns
that have been filed or will be filed by or in respect of either of the
Companies for any period ending on or before the Closing Date are or will be
true and correct. There exists no proposed assessment against either of the
Companies. No consent to the application of Section 341(f)(2) of the Code has
been filed with respect to any Company Property. Each of the Companies 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, stockholder or other third party. No claim has ever been made by a
Governmental Entity in a jurisdiction where either of the Companies or the
Seller on behalf of either of the Companies, does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. Each of the Companies has
delivered to DGI correct and complete copies of all federal, state and local Tax
Returns, examination reports filed by it and statements of deficiencies assessed
against or agreed to by either of the Companies since January 1, 1999.
2.19 Contracts. Except as set forth in Schedule 2.19 or any other schedule
referred to herein, neither of the Companies is a party to (i) any contract for
the purchase or sale of real property to or from any third party; (ii) any
contract for the lease or sublease of personal property from or to any third
party that provides for annual rentals in excess of $50,000, or any group of
contracts for the lease or sublease of similar kinds of personal property from
or to third parties that provides in the aggregate for annual rentals in excess
of $50,000; (iii) any contract for the purchase or sale of equipment, computer
software, lists of clients, insurance carriers or agents or similar information,
commodities, merchandise, supplies, other materials or personal property or for
the furnishing or receipt of services that calls for performance over a period
of more than 60 days and involves more than the sum of $50,000; (iv) any license
agreement involving the use of copyrights, franchises, licenses, trademarks, or
information owned by either of the Companies or others; (v) any broker's
representative, sales, agency or advertising contract that is not terminable on
notice of 30 days or less; (vi) any contract involving the borrowing or lending
of money or the guarantee of the obligations of officers, directors, employees
or others; (vii) any contract with the Seller or (viii) any other contract,
whether or not made in the Ordinary Course of Business, that is material to the
business or Assets of either of the Companies. Copies of all contracts and
agreements identified in Schedule 2.19 have been made available to DGI. No
outstanding purchase commitment by either of the Companies is in excess of its
ordinary business requirements or at a price in excess of market price at the
date thereof. Except as set forth in Schedule 2.19 or any other schedule
referred to herein, none of such contracts and agreements will expire or be
terminated or be subject to any modification of terms or conditions by reason of
the consummation of the transactions contemplated by this Agreement. With
respect to the contracts described in clause (vii) above, none of the agents who
is party to any such agreement has terminated, threatened to terminate or given
any notice, written or oral, of an intention to terminate its agreement with
either of the Companies or to reduce substantially the volume of business placed
with or through either of the Companies, and the Seller knows of no condition or
state of facts or circumstances that would cause any such termination or
reduction in the foreseeable future. Neither of the Companies is in default in
any material respect under the terms of any such contract nor is it in default
in the payment of any insurance premiums due to insurance carriers nor any
principal of or interest on any indebtedness for borrowed money nor has any
event occurred that, with the passage of time or giving of notice or both, would
constitute such a default by either of the Companies and, to the Knowledge of
the Seller, no other party to any such contract is in default in any material
respect thereunder nor has any such event occurred with respect to such party.
Without the prior written consent of DGI, the Seller will not cause or permit
either of the Companies to make any changes or modifications in any of the
foregoing, nor incur any further obligations or commitments, nor make any
further additions to its properties, except in each case in the Ordinary Course
of Business and as contemplated by this Agreement.
2.20 Employee Agreements. Listed on Schedule 2.20 are all plans, contracts
and arrangements, oral or written, including but not limited to union contracts,
employee benefit plans, employment agreements, consulting agreements,
confidentiality agreements, non-competition agreements or other agreements with
any employees of either of the Companies, under which either of the Companies
has any obligations, other than obligations to make current wage or salary
payments terminable on notice of 30 days or less, to or on behalf of its
officers, employees or their beneficiaries or under which any of such persons
owes money to either of the Companies. The bonus arrangements made by the Seller
with certain officers of the Companies that are payable upon the sale of the
Shares are not contingent on the results of operations of the Companies or on
the amount of the purchase price for the Shares.
2.21 Employee Relations. Neither of the Companies has engaged in any unfair
labor practice, unlawful employment practice or unlawful discriminatory practice
in the conduct of its business. Each of the Companies has complied in all
material respects with all applicable laws, rules and regulations relating to
wages, hours and collective bargaining and has withheld all amounts required by
agreement to be withheld from the wages or salaries of employees. The relations
of each of the Companies with its employees are satisfactory and neither of the
Companies is a party to or affected by or threatened with, or to the Knowledge
of the Seller, in danger of being a party to or affected by, any labor dispute
that materially interferes or would materially interfere with the conduct of its
business. Schedule 2.21 sets forth the name and total annual compensation,
including bonuses, payable to each of the officers, directors and employees of
either of the Companies whose total annual compensation, including bonuses,
during the year ended December 31, 2002 exceeded the sum of $100,000. Since
December 31, 2002, there has been no material increase in the compensation
payable to any of such officers, directors and employees, except as set forth in
Schedule 2.21.
2.22 Employee Retirement Income Security Act. Schedule 2.20 contains a list
of any "employee benefit plan" within the meaning of Section 3(3) of ERISA
established or maintained by either of the Companies or to which either of the
Companies has made any contributions. Neither of the Companies is required, and
was required within the immediately preceding five years, to make any
contribution to any "multiemployer plan" within the meaning of Section 3(37) of
ERISA. Neither of the Companies has liability in respect of any employee benefit
plans established or maintained or to which contributions are or were made by it
to the PBGC or to any beneficiary of such plans. All required reports and
descriptions, including Form 5500 Annual Reports, summary annual reports,
PBGC-1's and summary plan descriptions, have been timely filed and distributed
appropriately by each of the Companies with respect to each such employee
benefit plan. The requirements of COBRA have been met by each of the Companies
with respect to each such employee benefit plan that is an Employee Welfare
Plan.
Except as set forth in Schedule 2.20, (i) no employee pension benefit
plan, as defined in Section 3(2) of ERISA, maintained or contributed to by
either of the Companies or in respect of which either of the Companies is
considered an "employer" under Section 414 of the Code, has incurred any
"accumulated funding deficiency," as defined in Section 412 of the Code, whether
or not waived or has incurred any liability to PBGC and (ii) neither of the
Companies has breached any of the responsibilities, obligations or duties
imposed on it by ERISA with respect to any employee pension benefit plan
maintained by it, which breach has given rise to, or will in the future give
rise to, an obligation to pay money. Except as set forth in Schedule 2.20,
neither of the Companies nor any of their Affiliates or, to the Knowledge of the
Seller, any "party in interest," as defined in Section 3(14) of ERISA, in
respect of any such plan has engaged in any non-exempted prohibited transaction
described in Section 406 and 408 of ERISA or Section 4975 of the Code. Except as
set forth in Schedule 2.20, no reportable event, as defined in Section 4043 of
ERISA, has occurred with respect to any employee pension benefit plan maintained
or contributed to by either of the Companies or in respect of which either of
the Companies is an employer under Section 414 of the Code and none of such
plans has been terminated by the plan administrator thereof or by the PBGC.
Neither of the Companies or their Affiliates has incurred any liability under
ERISA. The original or a complete correct copy of each plan listed in Schedule
2.20 has been delivered to DGI.
2.23 Conflicts; Sensitive Payments. There are (i) no material situations
involving the interests of the Companies except as listed in Schedule 2.19 or
described in Schedule 2.23 or, to the Knowledge of the Seller, any officer or
director of either of the Companies that may be generally characterized as a
"conflict of interest," including, but not limited to, the leasing of property
to or from either of the Companies or direct or indirect interests in the
business of competitors, suppliers or customers of either of the Companies and
(ii) no situations involving illegal payments or payments of doubtful legality
from corporate funds of either of the Companies since January 1, 1997 to
governmental officials or others that may be generally characterized as a
"sensitive payment."
2.24 Corporate Name. The Companies own and possess, to the exclusion of the
Seller and its Affiliates, all rights to the use of the name The Peninsula
Insurance Company and Peninsula Indemnity Company in the operation of the
present business of the Companies or any other business similar to or
competitive with that being conducted by the Companies, including, but not
limited to, the right to use such name in advertising.
2.25 Trademarks and Proprietary Rights. All trademarks, trade names,
copyrights and applications therefor that are owned or used or registered in the
name of or licensed to either of the Companies are listed and briefly described
in Schedule 2.25. Other than as specified in Section 2.25, no proceedings have
been instituted or are pending or threatened or, to the Knowledge of the Seller,
contemplated that challenge the validity of the ownership by the Companies of
any of such trademarks, trade names, copyrights or applications. Neither of the
Companies has licensed anyone to use any of the foregoing or any other technical
know-how or other proprietary rights of either of the Companies, and the Seller
has no Knowledge of the infringing use of any of such trademarks and trade names
or the infringement of any of such copyrights by any person except as set forth
in Section 2.25. Each of the Companies owns and has properly registered all
trademarks, trade names, copyrights, processes and other technical know-how and
other proprietary rights now used in the conduct of its business and has not
received any notice of conflict with the asserted rights of others except as
specified in Schedule 2.25.
2.26 Environmental Matters.
(a) Each of the Companies is, and, to the Knowledge of the Seller, all
Properties of each of the Companies including, with respect to any Company
Property, all owners or operators thereof, are, and at all times have been in
substantial compliance with all applicable Environmental Laws. Neither of the
Companies has received any communication, written or oral, that alleges that
either of the Companies or any Company Property including, with respect to any
Company Property, any owner or operator thereof, is not in such compliance, and,
to the Knowledge of the Seller, there are no circumstances that may prevent or
interfere with such compliance in the future.
(b) There is no Environmental Claim pending against either of the
Companies or any Company Property by any governmental entity or, to the
Knowledge of the Seller, threatened against either of the Companies or any
Company Property by any governmental entity, or any Person whose Liability for
any Environmental Claims either of the Companies has or may have retained or
assumed either contractually or by operation of Law, except for Environmental
Claims that, individually or in the aggregate, would not have a Company Adverse
Effect on either of the Companies and excluding claims arising under Insurance
Contracts issued by the Companies.
(c) There are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the release,
emission, discharge, disposal or presence of any Hazardous Materials, that, to
the Knowledge of the Seller, could form the basis of any Environmental Claim
against either of the Companies, any Company Property or any Person whose
Liability for any Environmental Claim either of the Companies has or may have
retained or assumed either contractually or by operation of Law.
(d) There are no Hazardous Materials present on or in any Company
Property, including Hazardous Materials contained in barrels, above or
underground storage tanks, except as set forth in Schedule 2.26, landfills, land
deposits, dumps, equipment, whether movable or fixed, or other containers,
either temporary or permanent, and deposited or located in land, water, sumps or
any other part of the Company Property or such adjoining property, or
incorporated into any structure therein or thereon.
(e) Without in any way limiting the generality of the foregoing, to
the Knowledge of the Seller, (i) Schedule 2.26 identifies all underground
storage tanks and the capacity and contents of such tanks currently or formerly
located on any Company Property, (ii) there is no friable asbestos contained in
or forming part of any building or structure owned or leased by either of the
Companies and (iii) no polychlorinated biphenyls are used or stored at or on any
Company Property.
2.27 Insurance Issued by the Companies.
(a) Each of the Companies has provided to DGI all forms of Insurance
Contracts used by it as of June 30, 2003. Since June 30, 2003, no forms of
Insurance Contracts written by either of the Companies have been amended and no
sales of any new forms of Insurance Contracts have been commenced, other than
changes to forms, which changes are not, in the aggregate, material.
(b) To the Knowledge of the Seller, all benefits payable on or prior
to the date as of which this representation is made by either of the Companies
under Insurance Contracts have in all material respects been paid, or provision
for payment thereof has been made, in accordance with the terms of the Insurance
Contracts under which they arose, such payments were not delinquent and were
paid, or if provision has been made will be paid, without fines or penalties,
that, if not so paid or provided for, would have a Company Adverse Effect on
either of the Companies, and except for such benefits for which such Company
reasonably believes there is a valid basis to contest payment and is taking
appropriate action in connection therewith.
(c) To the Knowledge of the Seller, (i) all amounts recoverable under
reinsurance Contracts including, without limitation, amounts based on paid and
unpaid Losses are fully collectible except for any such amounts that are less
than $100,000 in the aggregate; (ii) each insurance agent or broker, at the time
such agent or broker wrote, sold or produced business for either of the
Companies, was duly licensed as an insurance agent or broker for the type of
business written, sold or produced by such insurance agent or broker in the
particular jurisdiction in which such agent or broker wrote, sold or produced
such business for either of the Companies, except for such failures to be so
licensed that would not, in the aggregate, have a Company Adverse Effect on
either of the Companies and (iii) no such insurance agent or broker has violated
or has taken any action that, with notice or lapse of time or both, would have
violated any Law except for such violations as would not have a Company Adverse
Effect on either of the Companies.
(d) Since January 1, 1993, except as set forth in Schedule 2.27,
neither of the Companies has undertaken any liability under assumed reinsurance
agreements of any nature, except for state mandated guaranty funds and residual
market insurance plans.
2.28 Health and Safety Matters.
(a) Each of the Companies has complied and is in compliance with all
Health and Safety Requirements.
(b) Without limiting the generality of the foregoing, each of the
Companies has obtained and complied with, and is in compliance with, all
Permits, licenses and other authorizations that are required pursuant to the
Health and Safety Requirements for the occupation of its facilities and the
operation of its business; a list of all such permits, licenses and other
authorizations is set forth on Schedule 2.28.
(c) Neither the Seller nor either of the Companies has received any
written or oral notice, report or other information regarding any actual or
alleged violation of Health and Safety Requirements, or any Liabilities or
potential Liabilities, including any investigatory, remedial or corrective
obligations, relating to either of the Companies or its facilities arising under
Health and Safety Requirements.
2.29 No Omissions. None of the representations or warranties of the Seller
contained herein, none of the information contained in the Schedules referred to
in this Article II, and none of the other information or documents furnished to
DGI or its representatives by the Seller or either of the Companies in
connection with this Agreement is false or misleading in any material respect or
omits to state a fact herein or therein necessary to make the statements herein
or therein not misleading in any material respect. To the Knowledge of the
Seller, there is no fact that adversely affects, or in the future is likely to
effect adversely, the business or assets of either of the Companies in any
material respect that has not been disclosed in writing to DGI.
2.30 Finders. Neither of the Companies nor the Seller has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement, except for the
obligation of the Seller to pay a finders' fee to Xxxx & Xxxxxx and the
obligation of the Seller to pay certain bonuses to certain officers of the
Company. Neither of the Companies nor the Seller has any agreement or obligation
whatsoever with entities other than DGI regarding any proposed acquisition of
the Companies by any such entity and none of them is engaged in any negotiations
with any such entity for any such acquisition.
2.31 Representations and Warranties to Be True on the Closing Date. All of
the representations and warranties set forth in this Article II shall be true
and correct on the Closing Date.
Article III
REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF DGI
As an inducement to the Seller to enter into this Agreement and to
consummate the transactions contemplated herein, DGI represents and warrants to
the Seller and agrees as follows:
3.1 Organization of DGI. DGI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
3.2 Corporate Authority. This Agreement and the transactions contemplated
herein have been duly approved by all necessary corporate action on the part of
DGI. This Agreement, when executed and delivered by DGI, and assuming due
execution hereof by the Seller, will constitute the valid and binding agreement
of DGI enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
Neither the execution nor the delivery of this Agreement, nor the consummation
of the transactions contemplated herein, nor compliance with nor fulfillment of
the terms and provisions hereof, will (i) conflict with or result in a breach of
the terms, conditions or provisions of or constitute a default under the
Certificate of Incorporation or By-laws of DGI, any instrument, agreement,
mortgage, judgment, order, award, decree or other restriction to which DGI is a
party or by which it is bound or any statute or regulatory provisions affecting
it or (ii) require the approval, consent or authorization of or any filing with
or notification to any federal, state or local court, Governmental Entity except
(x) as provided under the HSR Act, (y) the Required Filings and Approvals and
(z) such conflicts, breaches, defaults, rights or approvals that, individually
or in the aggregate, do not have a material adverse effect on the Condition of
DGI.
3.3 Finders. DGI has not paid or become obligated to pay any fee or
commission to any broker, finder or intermediary for or on account of the
transactions provided for in this Agreement based on actions taken or agreements
entered into by DGI.
3.4 Representations and Warranties to Be True on the Closing Date. All of
the representations and warranties set forth in this Article III shall be true
and correct on the Closing Date.
Article IV
ACTION PRIOR TO THE CLOSING DATE
The parties covenant and agree to take the following action between the
date hereof and the Closing Date:
4.1 Investigation of the Companies. The Seller shall cause the Companies to
afford to the officers, employees and authorized representatives, including,
without limitation, independent public accountants and attorneys, of DGI such
reasonable access upon reasonable prior notice during normal working hours to
the offices, properties, personnel, business and financial and other records of
the Companies as DGI shall deem necessary or desirable, and shall furnish to DGI
or its authorized representatives such additional financial and operating and
other data as shall be reasonably requested, including all such information and
data as shall be necessary in order to enable DGI or its representatives to
verify to their satisfaction the accuracy of the Company Financial Statements
and the representations and warranties contained in Article II of this
Agreement. No investigation made by DGI or its representatives, except to the
extent of actual Knowledge by DGI of any inaccuracy or breach of the
representations and warranties of the Seller contained herein, shall affect the
representations and warranties of the Seller hereunder or the liability of the
Seller with respect thereto.
4.2 Confidential Nature of Information. DGI and the Seller agree that, in
the event that the transactions contemplated herein shall not be consummated,
each will treat in confidence all documents, materials and other information
that it shall have obtained during the course of the negotiations leading to
this Agreement, the investigation of the other party hereto and the preparation
of this Agreement and other documents relating to this Agreement (collectively,
the "Confidential Information"), and shall return to the other party all copies
of the Confidential Information that have been furnished in connection
therewith. In the event that a party hereto becomes legally compelled to
disclose any of the Confidential Information, it shall provide the other party
with reasonable notice so that it may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this Section 4.2.
In the event that such protective order or other remedy is not obtained or that
the other party does not waive compliance with the provisions of this Section
4.2, the first party will furnish only that portion of the Confidential
Information that it is advised by opinion of counsel, which counsel shall be
reasonably acceptable to the other party, is legally required and will endeavor
to obtain assurance that confidential treatment will be accorded the
Confidential Information so furnished. DGI and the Seller agree and acknowledge
that a breach of the provisions of this Section 4.2 would cause the other party
to suffer irreparable damage that could not be adequately remedied by an action
at law. Accordingly, each party agrees that the other party shall have the right
to seek specific performance of the provisions of this Section 4.2 to enjoin a
breach or attempted breach of the provisions of this Section 4.2, such right
being in addition to all other rights and remedies that are available to each
party at law, in equity or otherwise.
4.3 Preserve Accuracy of Representations and Warranties. The Seller shall
refrain from taking any action and shall cause the Companies to refrain from
taking any action that would render any representation or warranty contained in
Article II of this Agreement inaccurate as of the Closing Date. The Seller will
promptly notify DGI of any lawsuits, claims, proceedings or investigations that,
to the Knowledge of the Seller, may be threatened, brought, asserted or
commenced against either of the Companies, their officers or directors or the
Seller (i) involving in any way the transactions contemplated by this Agreement
or (ii) which would, if determined adversely, have a Company Adverse Effect on
either of the Companies.
4.4 Maintain the Companies As Going Concerns. Except as otherwise
specifically provided herein, the Seller shall cause each of the Companies to
conduct its business in accordance with past practices and to use its best
efforts to maintain the business organization of each of the Companies intact,
keep available the services of each of the Companies' officers, employees and
agents and preserve the good will of its insurance underwriters, employees,
clients and others having business relations with it. The Seller shall cause
each of the Companies to provide DGI promptly with interim monthly financial
information and any other management reports, as and when they shall become
available, confer with DGI concerning operational matters of a material nature
and otherwise report periodically to DGI concerning the status of the business,
operations and financial condition of each of the Companies.
4.5 Make No Material Change in the Companies. Prior to the Closing Date,
the Seller shall not, without the prior written approval of DGI, cause or permit
either of the Companies to (i) make any material change in its business or
operations except as set forth in Schedule 4.5; (ii) make any material change in
the accounting policies applied in the preparation of the financial statements
referred to in Section 2.6; (iii) declare any dividends on its issued and
outstanding shares of capital stock or make any other distribution of any kind
in respect thereof; (iv) issue, sell or otherwise distribute any authorized but
unissued shares of its capital stock or effect any stock split or
reclassification of any such shares or grant or commit to grant any option,
warrant or other rights to subscribe for or purchase or otherwise acquire any
shares of its capital stock or any security convertible or exchangeable for any
such shares; (v) purchase or redeem any of its capital stock; (vi) incur or be
liable for indebtedness to the Seller or any of its subsidiaries or Affiliates;
(vii) make any material change in the compensation of its officers or key
employees; (viii) enter into any contract, license, franchise or commitment
other than in the Ordinary Course of Business or waive any rights of substantial
value; (ix) make any donation to any charitable, civic, educational or other
eleemosynary institution in excess of donations made in comparable past periods,
(x) make any change in the levels, procedures or methods employed in the setting
or changing of case basis loss reserves other than as is consistent with the
historical reserving practices of both of the Companies as described on Schedule
4.5 without the prior written approval of DGI nor shall any claim file be closed
by either of the Companies prior to the final disposition of such claim other
than in the ordinary course of business or (xi) enter into any other transaction
affecting in any material respect its business other than in the Ordinary Course
of Business and in conformity with its past practices or as contemplated by this
Agreement.
4.6 No Public Announcement. Neither the Seller nor DGI shall, without the
approval of the other, make any press release or other public announcement or
filing concerning the transactions contemplated by this Agreement, except as and
to the extent that any such party shall so determine, in which case the other
party shall be advised thereof and given a reasonable opportunity to comment
thereon.
4.7 Antitrust Law Compliance. DGI and the Seller have filed with the
Federal Trade Commission and the Antitrust Division of the Department of Justice
the notifications and other information required to be filed under the HSR Act,
or any rules and regulations promulgated thereunder, with respect to the
transactions contemplated hereby. Each party warrants that all such filings by
it were, and any future filings will be, as of the date filed, true and accurate
and in accordance with the requirements of the HSR Act and any such rules and
regulations. Each of DGI and the Seller agrees to make available to the other
such information as each of them may reasonably request relative to its
business, assets and property as may be required of each of them to file any
additional information requested by such agencies under the HSR Act and any such
rules and regulations.
4.8 Required Filings. As promptly as practical after the date of this
Agreement, the Seller, the Companies and DGI shall promptly commence and make
all Required Filings with the appropriate Governmental Entity required by Law to
be made by any of them in order to consummate the transactions contemplated by
this Agreement. Between the date of this Agreement and the Closing Date, the
Seller shall cooperate with DGI with respect to all Required Filings that DGI
elects to make or is required by law to make in connection with the transactions
contemplated by this Agreement. DGI agrees to file a Form A with the
Commissioner of Insurance of Maryland seeking approval of DGI's acquisition of
the Companies within 10 days after the signing of this Agreement.
Article V
ADDITIONAL COVENANTS OF THE SELLER
5.1 Non-Disclosure and Non-Solicitation.
(a) In furtherance of the sale of the Shares to DGI and to protect the
business and goodwill of the Companies, the Seller agrees that, for a period
commencing on the date of this Agreement and ending on the fourth anniversary of
the Closing Date, neither the Seller nor any subsidiary of the Seller shall
induce or attempt to persuade any employee of either of the Companies to
terminate such employment with the Companies in order to enter into employment
with the Seller or any of its subsidiaries provided, however, that nothing
herein shall prohibit the Seller or its subsidiaries from hiring such employees
in the event that an employee responds to an advertisement for employment that
is not directed at such employee.
(b) In furtherance of the sale of the Shares to DGI and to protect the
business and goodwill of the Companies, the Seller agrees, on behalf of itself
and its subsidiaries, that for a period commencing on the date of this Agreement
and ending on the second anniversary of the Closing Date, neither the Seller nor
any subsidiary of the Seller shall disclose any information, in whatever form or
whether now or later in its possession, with respect to the policyholders or the
agents of either of the Companies.
(c) Without limiting the right of DGI and any of its successors or
assigns to pursue all other legal and equitable rights available to them for
violation of the covenants set forth in Sections 5.1(a) and 5.1(b) by the
Seller, it is agreed 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.
5.2 Use of Trademarks. From and after the Closing Date, neither the Seller
nor any officer, director or employee of the Seller shall have the right to use
any of the trademarks, trade names or applications therefor heretofore used or
owned by either of the Companies or to use any trademarks or trade names similar
thereto or designs imitative thereof, except as officers or agents of the
Companies in connection with their businesses prior to the Closing Date. From
the date hereof, neither the Seller nor any officer, director or employee
thereof shall have the right to use or to disclose, except in the Ordinary
Course of Business, to any person, firm or corporation other than DGI, its
employees, agents and representatives, any secret processes, know-how, trade or
business secrets or client lists or other proprietary information of either of
the Companies.
5.3 Use of Name. From and after the Closing Date, the Companies and their
successors, assigns and affiliates shall own or possess, to the exclusion of the
Seller and any person controlling or controlled by the Seller, all rights to use
the names "The Peninsula Insurance Company", "Peninsula Indemnity Company" and
any name similar thereto.
5.4 Loss and Adjusting Reserves Guarantee.
(a) The Seller hereby guaranties DGI against any deficiency in excess
of $1,500,000 in the case basis loss reserves, reserves for incurred but not
reported losses and reserves for allocated loss adjustment expenses of the
Companies (collectively, the "Reserves") which are provided for on the Audited
Closing Balance Sheet provided for in Section 6.2 of this Agreement (the
"Reference Date") 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 Reference Date with a final actuarial review and
report being rendered within 60 days as of the fourth anniversary of the
Reference Date (the "Final Redetermination Date"). The Seller shall make any
guarantee payment due DGI within 10 business days after the final determination
of the amount thereof as provided in Section 5.4(d). This guarantee shall be the
exclusive remedy of the Seller with respect to the Reserves.
(b) Annually, DGI shall prepare an actuarial review which shall be
certified by KPMG LLP (the "Actuary") within 60 days of each annual Reference
Date and the results shall be submitted to the Seller 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 Section 5.4(c) dispute procedures,
each annual report shall be deemed by the Seller 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 Redetermination Date, of (i)
the Reserves for liabilities of the Companies incurred on or before the
Reference 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 the
Companies prior to the Closing Date) by the Companies during the period between
the Reference Date and the respective Redetermination Date with respect to
liabilities incurred prior to the Reference 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 the Companies' 2002 Annual Statements. Each
Annual Actuarial Report shall be accompanied by:
(i) a schedule that shows the composition of the Reserves,
net of reinsurance purchased by the Companies prior to the
Closing Date, in respect of losses incurred by the Companies
on or before the Reference Date and in respect of the
development of such losses after the Reference Date;
(ii) a reconciliation of the amounts included in such
schedule to the Reserves included, or to be included, in the
Annual Statements of the Companies filed, or to be filed,
with the state regulatory authorities after the Reference
Date; and
(iii) a calculation of any payment required to be made by
the Seller to DGI in accordance with this Section 5.4.
(c) If the Seller objects to the final report rendered on the Final
Redetermination Date (a "Dispute"), the Seller shall give DGI a written notice
of a Dispute (a "Dispute Notice") which notice shall be rendered within 30 days
after the receipt by the Seller of the final Annual Actuarial Report rendered as
of the Final Redetermination Date. 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 the Seller to DGI and shall also provide
the information required by paragraph (d) of this Section 5.4. In the event that
the Seller and DGI are unable to resolve any Dispute within such 30-day period,
then the Dispute shall immediately be submitted to Ernst & Young LLP (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 the Seller a
written report setting forth (i) the Arbiter's determination of any guarantee
payment to be made by the Seller to DGI, if any, as of such Redetermination 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 hereto with respect to the Dispute . If Seller fails to give written
notice of a Dispute within the Dispute Period, the Actuarial Report rendered as
of the Final Redetermination 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.
(d) Following the Closing, upon the delivery of reasonable prior
written notice, the Seller 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 the Companies' officers,
employees and auditors to:
(i) afford the officers, employees, agents, accountants,
actuaries and representatives of the Seller 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 the Companies; and
(ii) during the review period provided for in clause (i),
upon the reasonable written request of the Seller, furnish
to the officers, employees, accountants, actuaries and
representatives of the Seller 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 the Companies
or DGI.
(e) The Seller's guarantee in Section 5.4(a) shall expire on the
making of any guarantee payment required by the fourth Annual Actuarial Report.
(f) The maximum obligation of the Seller under its guarantee in
Section 5.4(a) shall be $4,000,000.
(g) Notwithstanding anything contained in this Section 5.4 to the
contrary, in the event that all of the Reserves are, within the four-year period
referenced in subsection (a) actually paid by the Companies and DGI provides
evidence of the same, then in such event the Seller shall begin to make payments
to DGI to the extent that such Reserves are actually paid and are in excess of
the $1,500,000 threshold referenced in Section 5.4(a). DGI shall nonetheless
cause the Companies to provide the reports referenced in Section 5.4.
(h) DGI covenants that during the four years following Closing that it
shall continue to process claims of the Companies in a matter that is consistent
with the claims settlement practices of the Companies prior to the Closing.
5.5 Substitution of Securities. Prior to the Closing Date, the Seller
agrees to substitute securities as valued by the Securities Valuation Office or
cash for certain investments held in the investment portfolios of the Companies
or limited partnership capital commitments made by the Companies provided that
DGI shall have notified the Seller of such investments and commitments not later
than 30 days prior to the Closing Date.
5.6 Reinsurance Guarantee.
(a) The Seller hereby guarantees DGI against any loss incurred by
either of the Companies by reason of retrospective components of the multi-line
casualty excess and umbrella reinsurance agreements resulting from adverse loss
development, including any contingent commissions, that may or should have been
recognized in the income statements of either of the Companies for the quarter
ended June 30, 2003.
(b) The Seller shall promptly pay to DGI the amount of any loss
described in Section 5.6(a) upon receipt from DGI from time to time of
reasonably acceptable evidence of any such loss.
5.7 Suspension of Dividends. As of the date of this Agreement, the Seller
agrees to cause PIC-2 to suspend the payment of any dividends or other
distributions to PIC-1 and to cause PIC-1 to suspend the payment of any
dividends or other distributions to the Seller, unless, in each case, (i) DGI
consents to the payment of such dividend or other distribution prior to the
payment thereof and (b) the purchase price payable by DGI to the Seller is
reduced by the amount of all such dividends and other distributions.
5.8 Property Casualty Reinsurance Agreement. The Seller agrees, upon the
request of DGI, to cause OneBeacon Insurance Company ("OneBeacon") to enter into
an agreement with each of the Companies to the effect that that OneBeacon will
not non-renew or modify prior to December 31, 2004 any of the terms and
conditions of the current Property Reinsurance Agreement between OneBeacon and
the Companies, the terms and conditions of which are set forth on Schedule 5.8.
Article VI
PURCHASE PRICE AND CLOSING
6.1 Closing Date. Subject to the fulfillment of the conditions precedent
specified in Articles VII and VIII, the transactions contemplated by this
Agreement shall be consummated (the "Closing") at 10:00 a.m., on the second
business day following receipt of all Required Filings and Approvals (the
"Closing Date") at the offices of Xxxxx Xxxxxx LLP, 4200 Xxx Xxxxxxx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000 or at such other place or such other time as
DGI and the Seller shall mutually agree.
6.2 Purchase and Sale.
(a) On the Closing Date, DGI shall purchase from the Seller, and the
Seller shall sell to DGI, the Shares for a purchase price equal to 107.5% of the
consolidated GAAP stockholders' equity of the Companies on the date of the
closing (the "Final Purchase Price").
(b) Pending the determination of the Final Purchase Price, the parties
agree to close on the basis of an estimated purchase price (the "Estimated
Purchase Price"). The Estimated Purchase Price shall equal 107.5% of the
unaudited GAAP stockholders' equity of the Companies as of the last day of the
month next preceding the month in which the Closing occurs as prepared by the
Seller.
(c) At the Closing, DGI shall pay the Estimated Purchase Price to the
Seller by wire transferring the Estimated Purchase Price, subject to reduction
as provided in Section 5.7 to the extent not reflected in the unaudited GAAP
stockholders' equity of the Companies as determined pursuant to Section 6.2(b),
to a bank account designed in writing to DGI by the Seller.
(d) Promptly following the Closing, DGI shall retain KPMG LLP to
determine 107.5% of the actual audited consolidated GAAP stockholders' equity of
the Companies as of the Closing Date which audit shall include a review of the
Reserves and provide a line item on the Balance Sheet for such Reserves in order
for the parties to meet their obligations under Section 5.4 and which shall be
prepared in compliance with Section 7.7(b). Upon conclusion of its determination
of the Final Purchase Price, KPMG LLP shall furnish its written determination of
the Final Purchase Price to the Seller and DGI.
(e) If the Seller or DGI objects (an "Objection") to the determination
of the Final Purchase Price by KPMG LLP, the objecting party shall give the
other party written notice of such an objection (an "Objection Notice") within
30 days after the receipt by the objecting party of the determination of the
Final Purchase Price (the "Objection Periods"), which Objection Notice shall set
forth in reasonable detail the elements and amounts to which the objecting party
objects and the basis for such objections. If either the Seller or DGI gives an
Objection Notice, the Seller and DGI shall, within 30 days after receipt by
either party of such Objection Notice, attempt to resolve such Objection and
agree in writing upon the Final Purchase Price. In the event that the Seller and
DGI are unable to resolve any Objection within such 30-day period, then the
Objection shall be submitted to Ernst & Young LLP for determination of the Final
Purchase Price. Within 30 days from the date the Objection is submitted to Ernst
& Young LLP, Ernst & Young LLP shall deliver to DGI and the Seller Ernst & Young
LLP's determination of the Final Purchase Price. Ernst & Young's determination
of the Final Purchase Price shall be final and binding on the parties hereto.
DGI and the Seller shall bear equally the costs of Ernst & Young LLP in
determining the Final Purchase Price. DGI shall provide the Seller reasonable
access to the books and records of the Companies in order to review the
determination of KPMG LLP of the Final Purchase Price.
(f) If neither DGI nor the Seller gives an Objection Notice within the
Objection Period, the determination of the Final Purchase Price by KPMG LLP
shall be deemed to have been accepted in the form in which it was delivered and
shall be final and binding upon the parties in the absence of fraud or manifest
error.
(g) To the extent that the Final Purchase Price determined by KPMG LLP
or Ernst & Young LLP, as the case may be, exceeds the Estimated Purchase Price
paid by DGI to the Seller on the Closing Date, DGI shall within 10 days
thereafter pay to the Seller the amount by which the Final Purchase Price
exceeds the Estimated Purchase Price. To the extent the Final Purchase Price
determined by KPMG LLP or Ernst & Young LLP, as the case may be, is less than
the Estimated Purchase Price paid by DGI to the Seller on the Closing Date, the
Seller shall within 10 days thereafter pay to DGI the amount by which the
Estimated Purchase Price exceeds the Final Purchase Price.
6.3 Delivery by the Seller. In addition to the deliveries called for by
Article VII hereof, the Seller shall deliver to DGI certificates representing
all of the PIC-1 Shares and PIC-2 Shares, together with fully executed and
witnessed stock powers in blank attached thereto with signatures guaranteed by a
bank or trust company or a member firm of the New York Stock Exchange, Inc.
6.4 Delivery by DGI. In addition to the deliveries called for by Article
VIII hereof, DGI shall make payment of the Estimated Purchase Price to the
Seller as provided in Section 6.2(c).
Article VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF DGI
The obligations of DGI under this Agreement to purchase and pay for the
Shares shall, at the option of DGI, be subject to the satisfaction, on or prior
to the Closing Date, of the following conditions:
7.1 No Misrepresentation or Breach of Covenants and Warranties. There shall
have been no material breach by the Seller in the performance of any of its
covenants and agreements herein, each of the representations and warranties of
the Seller 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 and the information concerning either of the
Companies contained in its Annual Statement for the year ended December 31, 2002
shall have been true and correct in all material respects as of the last day of
each such year and there shall have been delivered to DGI a certificate or
certificates to that effect, dated the Closing Date, and signed by an officer of
the Seller.
7.2 No Changes in or Destruction of Property. There shall not have been,
between the date hereof and the Closing Date, (i) any change, condition, event
or development that, individually or in the aggregate, would constitute a
Company Adverse Effect as to either of the Companies, (ii) no adverse federal,
state or local legislative or regulatory change affecting in any material
respect the services or business of either of the Companies that would
constitute a Company Adverse Effect as to either of the Companies, (iii) no
material damage to any Company Property or Assets of either of the Companies 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 either of the Companies to render services or continue operations
and (iv) no material and adverse development or proceeding affecting the
Insurance Licenses of either of the Companies in each of the states listed in
Schedule T of its Annual Statement for the year ended December 31, 2002. There
shall have been delivered to DGI a certificate, dated the Closing Date, and
signed on behalf of the Seller (a) to the effect that between the date hereof
and the Closing Date there has been no such Company Adverse Effect as to either
of the Companies as stated in clause (i) hereof, no such material damage as
stated in clause (iii) hereof and no adverse licensing development as stated in
clause (iv) hereof and (b) further stating that nothing has come to the signer's
attention, in the course of his activities on behalf of either of the Companies,
that causes him to believe that during such period there occurred any adverse
federal, state or local legislative or regulatory change affecting in any
material respect the services or business of either of the Companies.
7.3 Legal Matters.
(a) Filings. All Required Filings and Approvals required to be
obtained prior to the Closing Date shall have been obtained and not rescinded or
adversely modified or limited as set forth in the proviso below 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 either
of the Companies to dispose of all or any portion of its business or Assets or
impose or seek to impose any limitation on the ability of either of the
Companies 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
Entity shall be in effect that would prevent the consummation of the purchase or
sale of the Shares or the other transactions contemplated hereby, and no
Proceeding brought by a Governmental Entity 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.
7.4 Additional Claims. There shall have been delivered to DGI a
certificate, dated the Closing Date, and signed by an officer of the Seller
describing all claims pending, or to the Knowledge of the Seller, threatened
against either of the Companies, up to the Closing Date not described on
Schedule 2.15.
7.5 Resignations. DGI shall have received the resignations of each director
of both of the Companies and the resignation of each officer of both of the
Companies designated by DGI on or prior to the Closing Date.
7.6 Employment Agreements. Not later than the Closing Date, Xxxxxx Xxxx
Xxxxxxxxx, III, Xxxxxxx X. Xxxx, Xxxx X. Xxxxxx, Xxxxx X. Xxxxxx, Xxxxxxx
Xxxxxxx and Xxxxxxx Xxxxxxxx (the "Officers") shall each have entered into an
employment agreements in the form of Schedule 7.6. Except as provided in such
employment agreements, PIC-1 and PIC-2 shall have no other obligation to the
Officers in respect of their employment by PIC-1 or PIC-2 or the termination of
such employment.
7.7 Items to be Received by DGI. Not later than the third business day
prior to the Closing Date:
(a) each of the Companies shall have received the unqualified opinion
of PricewaterhouseCoopers LLP on the GAAP financial statements of each of the
Companies for the year ended December 31, 2002 and a copy thereof shall have
been furnished to DGI; and
(b) the Company shall have received the unqualified opinion of
Xxxxxxxxxxx as to the actuarial adequacy of the loss reserves of each of the
Companies as of December 31, 2002, and shall also receive a copy of the reserve
evaluation prepared by Xxxxxxxxxxx as of September 30, 2003. Subsequent to the
Closing and as part of the final determination of the actual consolidated GAAP
equity of the Companies as of the Closing Date, Xxxxxxxxxxx shall review the
Reserves and issue an unqualified opinion with respect to such Reserves as of
the Closing Date which opinion shall be furnished to KPMG LLP, DGI and Seller.
KPMG LLP shall use the Xxxxxxxxxxx report in the preparation of its audit of the
actual audited consolidated GAAP equity as of the Closing Date as provided in
Article 6.2.
7.8 Minimum Companies Surplus. The consolidated policyholders surplus
of the Companies, determined in accordance with SAP, shall be not less than
$18,000,000 as of the last day of the month immediately preceding the month in
which the Closing occurs.
Article VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
The obligations of the Seller under this Agreement to sell and receive
payment for the Shares shall, at the option of the Seller, be subject to the
satisfaction, on or prior to the Closing Date, of the following conditions:
8.1 No Misrepresentation or Breach of Covenants and Warranties. There
shall have been no material breach by DGI in the performance of any of its
covenants herein, each of the representations and warranties of DGI 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 and there shall have been delivered to the Seller a certificate or
certificates to that effect, dated the Closing Date, and signed on behalf of DGI
by its President.
8.2 Legal Matters.
(a) Filings. All Required Filings and Approvals required to be
obtained prior to the Closing Date shall have been obtained and not rescinded or
adversely modified or limited as set forth in the proviso below 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 either
of the Companies to dispose of all or any portion of its business or Assets or
impose or seek to impose any limitation on the ability of either of the
Companies 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
Entity shall be in effect which would prevent the consummation of the purchase
or sale of the Shares or the other transactions contemplated hereby, and no
Proceeding brought by a Governmental Entity 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.
Article IX
TERMINATION
9.1 Termination. This Agreement may be terminated and the purchase and sale
of the Shares abandoned at any time prior to the Closing Date:
(a) by mutual consent of DGI and the Seller;
(b) by either DGI or by the Seller by one day's written notice to the
Seller or DGI, as the case may be, if the Closing shall not have been
consummated on or before March 31, 2004;
(c) by either DGI or the Seller by one day's written notice to the
Seller or DGI, as the case may be, if any of the conditions to such party's
obligations to consummate the transactions contemplated by this Agreement shall
have become impossible to satisfy; or
(d) by DGI if (i) the Seller is in breach at any time prior to the
Closing Date of any of the representations and warranties made by the Seller as
though made on and as of such date, unless the inaccuracies (without giving
effect to any materiality or material adverse effect qualifications or
materiality exceptions contained therein) in such representations and
warranties, individually or in the aggregate, have not had and would not
reasonably be expected to result in a Company Adverse Effect as to either of the
Companies or (ii) the Seller shall not have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on and as of such date, which breach cannot be or has not
been cured, in all material respects within 15 days after the giving of written
notice thereof by DGI to the Seller.
(e) by the Seller if DGI shall not have performed and complied in all
material respects with all covenants required by this Agreement to be performed
or complied with by it on and as of such date, which breach cannot be or has not
been cured, in all material respects within 15 days after the giving of written
notice thereof by the Seller to DGI.
9.2 Effect of Termination. In the event of the termination of this
Agreement by either DGI or the Seller, as provided in Section 9.1, this
Agreement shall thereafter become void and there shall be no Liability on the
part of any party hereto against any other party hereto, or their respective
directors, officers, Policyholders or agents, except that (i) any such
termination shall be without prejudice to the rights of any party hereto arising
out of the willful breach by any other party of any covenant or agreement
contained in this Agreement, (ii) Sections 4.2, 11.1, 11.2 and 11.3 shall
continue in full force and effect notwithstanding such termination and (iii)
each of the parties hereto shall provide the other party hereto with a copy of
any proposed public announcement regarding the occurrence of such termination
and an opportunity to comment thereon prior to its dissemination.
Article X
AMENDMENT, WAIVER AND INDEMNIFICATION
10.1 Amendment. This Agreement may be amended or modified in whole or in
part at any time by an agreement in writing executed in the same manner as this
Agreement, provided, however, that no amendment shall be made which changes the
terms of this Agreement in any material respect and which requires the further
approval or proceedings of any insurance Governmental Entity without such
approval having first been obtained or such proceedings having first been
completed.
10.2 Extension; Waiver. At any time prior to the Closing Date, any party
hereto may:
(a) extend the time for the performance of any of the obligations or
other acts of the other party hereto;
(b) waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto; and
(c) waive compliance with any of the agreements or conditions
contained herein.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party by its President. The failure of any party hereto to enforce at any time
any provision of this Agreement shall not be construed to be a waiver of such
provision, nor in any way to affect the validity of this Agreement or any part
hereof or the right of such party hereafter to enforce each and every such
provision. No waiver of any breach of this Agreement shall be held to constitute
a waiver of any other or subsequent breach.
10.3 Survival of Obligations. All certifications, representations and
warranties made herein by the Seller and its obligations to be performed
pursuant to the terms hereof, shall survive the Closing Date hereunder,
notwithstanding any notice of any inaccuracy, breach or failure to perform not
waived in writing and notwithstanding the consummation of the transactions
contemplated herein with Knowledge of such inaccuracy, breach or failure. All
representations and warranties contained herein shall terminate one year after
the Closing Date; provided that (i) the representations and warranties contained
in Section 2.17 shall expire two years after the Closing Date or, with respect
to each claim under Section 2.17 arising before or during such two-year period,
upon the earlier to occur of (x) such claim's final judicial determination or
settlement and satisfaction of any judgment or full payment of any settlement,
as the case may be, or (y) such time, if any, as the claim shall be barred by
the applicable statute of limitations, (ii) the representations and warranties
contained in Section 2.18 shall expire four years after the Closing Date or with
respect to any dispute with the IRS upon the earlier to occur of (x) such
dispute's final resolution and the payment of all taxes, interests and penalties
arising therefrom and (y) the expiration of the applicable statute of
limitations and (iii) the representations in Section 2.4 shall not expire.
10.4 Indemnification.
(a) Each party (the "Indemnifying Person") agrees to indemnify and
hold harmless the other party and their respective subsidiaries, affiliates,
partners, successors and assigns (collectively, the "Indemnified Persons") from
and against any and all (x) Liabilities, losses, costs, deficiencies or damages
("Loss") and (y) reasonable attorneys' and accountants' fees and expenses, court
costs and all other reasonable out-of-pocket expenses ("Expense") incurred by
any Indemnified Person, in each case net of any insurance proceeds received and
retained by such Indemnified Person, in connection with or arising from (i) any
breach by the Indemnifying Person of any of its covenants in, or any failure of
the Indemnifying Person to perform any of its obligations under, this Agreement
or (ii) any material breach of any warranty or the material inaccuracy of any
representation of the Indemnifying Person contained or referred to in this
Agreement or in any certificate delivered by or on behalf of the Indemnifying
Person pursuant hereto and the Seller agrees to indemnify and hold harmless DGI
from and against any Loss and Expense incurred by DGI arising from any claim
that the Seller did not convey to DGI good and marketable title to all of the
issued and outstanding capital stock of PIC-1 and PIC-2 pursuant to this
Agreement, provided that:
(i) with respect to the representations and warranties
contained in Section 2.4, the liability of the Seller shall
not be in excess of the Purchase Price; and
(ii) with respect to all other representations and
warranties, the liability of the Indemnifying Person shall
be limited to an aggregate of $5,000,000.
The amount of the liability of the Indemnifying Person under
clause (2) at any time is referred to herein as a "Liability Limit." No claim
shall be made for indemnity pursuant to this Section 10.4 until the aggregate
amount of Loss and Expense incurred by all Indemnified Persons exceeds $100,000,
but if the aggregate amount of such Loss and Expense exceeds such amount, the
Indemnifying Person shall be liable for all Loss and Expense, including such
initial $100,000 amount, subject to any applicable Liability Limit. In addition,
no claim for indemnity pursuant to this Section 10.4 shall be made in respect of
any Liability to the extent that such Liability is reflected on the audited
balance sheet of the Companies as of the Closing Date.
(b) If any Indemnified Person has suffered or incurred any Loss or
incurred any Expense, it shall so notify the Indemnifying Person promptly in
writing describing such Loss or Expense, the amount thereof, if known, and the
method of computation of such Loss or Expense, all with reasonable particularity
and containing a reference to the provision of this Agreement or any certificate
delivered pursuant hereto in respect of which such Loss or Expense shall have
occurred. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Person intends to claim any
liability or expense as Loss or Expense under this Section 10.4, such
Indemnified Person shall promptly notify the Indemnifying Person of such action
or suit. The failure of an Indemnified Person to promptly notify the
Indemnifying Person of a claim as contemplated by the preceding sentence will
not relieve the Indemnifying Person of its obligations under this Section 10.4
except to the extent that the Indemnifying Person is prejudiced in its defense
of such claim as a result of such failure to give prompt notice.
(c) Subject to paragraph (d) of this Section 10.4, the Indemnified
Persons shall have the right to conduct and control, through counsel of their
choosing, any third party claim, action or suit and may compromise or settle the
same, provided that any of the Indemnified Persons shall give the Indemnifying
Person advance notice of any proposed compromise or settlement. The Indemnified
Persons shall permit the Indemnifying Person to participate in the defense of
any such action or suit through counsel chosen by it, provided that the fees and
expenses of such counsel shall be borne by the Indemnifying Person. Any
compromise or settlement with respect to a claim for money damages effected
after the Indemnifying Person, by notice to the Indemnified Persons, shall have
disapproved such compromise or settlement, shall discharge the Indemnifying
Person from liability with respect to the subject matter thereof, and no amount
in respect thereof shall be claimed as Loss or Expense under this Section 10.4;
provided that if the Indemnifying Person shall disapprove of a proposed
compromise or settlement of a claim the acceptance of which is recommended by
counsel conducting the defense of such claim and the amount of such settlement
would exceed an applicable Liability Limit, the Indemnifying Person shall,
notwithstanding such Liability Limit, be liable for the full amount of any
judgment entered in respect of, or later compromise or settlement approved by
the Indemnifying Person of, such claim less the amount by which the proposed
compromise or settlement disapproved by the Indemnifying Person exceeded such
Liability Limit.
(d) If the remedy sought in any action or suit referred to in
paragraph (c) of this Section 10.4 is solely money damages and the sum of (i)
the amount claimed in such action or suit, (ii) all amounts previously paid by
the Indemnifying Person pursuant to this Section 10.4 and (iii) all amounts
claimed in all pending claims for indemnity under this Section 10.4 does not
exceed the aggregate liability of the Indemnifying Person under this Section
10.4, the Indemnifying Person shall have 15 business days after receipt of the
notice referred to in the last sentence of paragraph (b) of this Section 10.4 to
notify the Indemnified Persons that it elects to conduct and control such action
or suit. If the Indemnifying Person does not give the foregoing notice, the
Indemnified Persons shall have the right to defend, contest, settle or
compromise such action or suit in the exercise of their exclusive discretion and
the Indemnifying Person shall, upon request from any of the Indemnified Persons,
promptly pay to such Indemnified Persons in accordance with the other terms of
this Section 10.4 the amount of any Loss resulting from its liability to the
third party claimant and all related Expense. If the Indemnifying Person gives
the foregoing notice, the Indemnifying Person shall have the right to undertake,
conduct and control, through counsel of its own choosing and at its sole expense
of the Indemnifying Person, the conduct and settlement of such action or suit,
and the Indemnified Persons shall cooperate with the Indemnifying Person in
connection therewith; provided that (x) the Indemnifying Person shall not
thereby permit to exist any Lien upon any Asset of any Indemnified Person, (y)
the Indemnifying Person shall permit the Indemnified Persons to participate in
such conduct or settlement through counsel chosen by the Indemnified Persons,
but the fees and expenses of such counsel shall be borne by the Indemnified
Persons, except as provided in clause (z) hereof and (z) the Indemnifying Person
shall agree promptly to reimburse to the extent required under this Section 10.4
the Indemnified Persons for the full amount of any Loss resulting from such
action or suit and all related Expense incurred by the Indemnified Persons,
except fees and expenses of counsel for the Indemnified Persons incurred after
the assumption of the conduct and control of such action or suit by the
Indemnifying Person. So long as the Indemnifying Person is contesting any such
action or suit in good faith, the Indemnified Persons shall not pay or settle
any such action or suit. Notwithstanding the foregoing, the Indemnified Persons
shall have the right to pay or settle any such action or suit, provided that in
such event the Indemnified Persons shall waive any right to indemnity therefor
by the Indemnifying Person and no amount in respect thereof shall be claimed as
Loss or Expense under this Section 10.4.
10.5 Tax Matters. The following provisions shall govern the allocation of
responsibility as between DGI and the Seller for certain tax matters following
the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The Seller shall
prepare or cause to be prepared and file or cause to be filed all Tax Returns
for the Companies for all periods ending on or prior to the Closing Date which
are filed after the Closing Date. The Seller shall permit DGI to review and
comment on each such Tax Return described in the preceding sentence prior to
filing and shall make such revisions to such Tax Returns as are reasonably
requested by DGI. In addition, if any officer of DGI or any Affiliate of DGI is
required to sign a Tax Return, DGI shall have the right, at DGI's expense, to
cause the Tax Return to be reviewed by KPMG LLP and the Seller shall make any
revisions to such Tax Return as are reasonably requested by KPMG LLP. The Seller
shall be responsible for the payment of Taxes of the Companies with respect to
such periods except to the extent such Taxes are reflected in the reserve for
Tax liability, rather than any reserve for deferred Taxes established to reflect
timing differences between book and Tax income, shown on the face of the Balance
Sheet as of the Closing Date and, in such event, shall pay to DGI the amount of
any such tax to reimburse it for the payment of the tax by the Companies.
(b) Tax Periods Beginning Before and Ending After the Closing Date.
DGI shall prepare or cause to be prepared and file or cause to be filed, subject
to review and approval by the Seller, which approval shall not be unreasonably
withheld or delayed, any Tax Returns of the Companies for Tax periods which
begin before the Closing Date and end after the Closing Date, subject to Section
10.5(a). In addition, if the Seller is required to sign any such Tax Return, the
Seller shall have the right, at the Seller's expense, to cause the Tax Return to
be reviewed by its tax personnel and DGI shall make any revisions to such Tax
Return as are reasonably requested by the Seller's tax personnel. The Seller
shall pay to DGI within 15 days after the date on which Taxes are paid with
respect to such periods an amount equal to the portion of such Taxes which
relates to the portion of such Taxable period ending on the Closing Date to the
extent such Taxes are not reflected in the reserve for Tax Liability, rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income, shown on the face of the Balance Sheet as of the
Closing Date. For purposes of this Section 10.5(b), in the case of any Taxes
that are imposed on a periodic basis and are payable for a Taxable period that
includes, but does not end on, the Closing Date, the portion of such Tax that
relates to the portion of such Taxable period ending on the Closing Date shall
(x) in the case of any Taxes other than Taxes based upon or related to income or
receipts, be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in the entire Taxable period, and (y) in the case of any Tax
based upon or related to income or receipts be deemed equal to the amount which
would be payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable period
ended on the Closing Date. All determinations necessary to give effect to the
foregoing allocations shall be made in a manner consistent with prior practice
of the Companies.
(c) Refunds and Tax Benefits. Any Tax refunds that are received by DGI
or the Companies, and any amounts credited against Tax to which DGI or the
Companies become entitled, that relate to Tax periods or portions thereof ending
on or before the Closing Date that were not reflected on the Balance Sheet as of
the Closing Date shall be for the account of the Seller, and DGI shall pay over
to the Seller any such refund or the amount of any such credit within 45 days
after receipt or entitlement thereto. In addition, to the extent that a claim
for refund or a proceeding results in a payment or credit against Tax by a
taxing authority to DGI or the Companies of any Tax accrued on the Balance Sheet
as of the Closing Date, DGI shall pay such amount to the Seller within 45 days
after receipt or entitlement thereto provided that such payment or credit
against Tax was not reflected on the Balance Sheet as of the Closing Date.
(d) Cooperation on Tax Matters.
(i) DGI and the Seller shall cooperate fully, as and to the
extent reasonably requested by the other party, in
connection with the filing of Tax Returns pursuant to this
Section 10.5 and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the
retention and, upon the other party's request, the provision
of records and information that 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. The Companies and the Seller
agree (A) to retain all books and records with respect to
Tax matters pertinent to the Companies relating to any
taxable period beginning before the Closing 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, and (B)
to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and
records and, if the other party so requests, the Companies
or the Seller, as the case may be, shall allow the other
party to take possession of such books and records.
(ii) DGI and the Seller further agree, upon request, to
provide the other party with all information that either
party may be required to report pursuant to all applicable
Tax law.
(e) Tax-Sharing Agreements. All tax-sharing agreements or similar
agreements with respect to or involving the Companies and the Seller shall be
terminated as of the Closing Date and, after the Closing Date, neither the
Companies nor the Seller shall be bound thereby or have any liability
thereunder.
Article XI
MISCELLANEOUS
11.1 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be given by confirmed telex or telecopy
or registered mail, postage prepaid, addressed as follows:
if to DGI, to:
Donegal Group Inc.
0000 Xxxxx Xxxx
Xxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxxx, President
with a copy to:
Duane, Morris LLP
0000 Xxx Xxxxxxx Xxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxxxx X. Xxxxxx, Esq.
if to the Seller, to:
FolksAmerica Holding Company, Inc.
0000 Xxxxxxx Xxxxxx
Xxxxxxx Xxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx
with a copy to:
Folksamerica Reinsurance Company
Xxx Xxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxxx, Esq.
or to such other address as the Person to whom notice is given may have
previously furnished to the other party in writing in accordance herewith.
11.2 Expenses. Except as otherwise provided herein, each party hereto shall
pay its own expenses including, without limitation, legal and accounting fees
and expenses incident to its negotiation and preparation of this Agreement and
to its performance and compliance with the provisions contained herein. The
Seller agrees that it shall be responsible for the fees of Xxxx & Xxxxxx and the
bonuses payable to certain officers of the Companies upon the consummation of
the transactions contemplated hereby.
11.3 Governing Law; Jurisdiction and Service of Process.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its rules on conflicts
of law.
(b) Each party hereto irrevocably and unconditionally consents and
submits to the exclusive jurisdiction of the courts of the State of Delaware and
of the United States of America located in the State of Delaware for any action,
suit or proceeding arising out of or relating to this Agreement and the
transactions contemplated hereby, and further agrees that service of any
process, summons, notice or document by United States registered or certified
mail to the Seller or DGI, as the case may be, at the addresses set forth in
Section 11.1 hereof, shall be effective service of process for any action, suit
or proceeding brought against such party in such court. Each party hereto
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in the courts of the State of Delaware located in
Wilmington, Delaware or of the United States of America located in Wilmington,
Delaware, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in any inconvenient forum.
11.4 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, provided that the rights of the Seller herein may not be assigned and
the rights of DGI may be assigned only (i) to such other business organization
which shall succeed to substantially all the assets, liabilities and business of
DGI or (ii) to a wholly owned subsidiary of DGI, in which event such assignment
shall not relieve DGI of any of DGI's obligations to the Seller under this
Agreement. Nothing in this Agreement, expressed or implied, is intended to
confer upon any other Person any rights or remedies of any nature under or by
reason of this Agreement.
11.5 Partial Invalidity. In case any one or more of the provisions
contained herein shall, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision or
provisions had never been contained herein unless the deletion of such provision
or provisions would result in such a material change as to cause completion of
the transactions contemplated herein to be unreasonable or materially and
adversely frustrate the objectives of the parties as expressed in this
Agreement.
11.6 Execution in Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same agreement,
and shall become a binding agreement when one or more counterparts have been
signed by each of the parties and delivered to each of the other parties.
11.7 Titles and Headings. Titles and headings to Articles and Sections
herein are inserted for convenience of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Agreement.
11.8 Schedules. The Schedules to this agreement shall be construed with and
as an integral part of this Agreement to the same extent as if the same had been
set forth verbatim herein.
11.9 Entire Agreement. This Agreement, including the Schedules hereto,
contains the entire understanding of the parties hereto with regard to the
subject matter contained herein.
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
executed on its behalf all as of the date first above written.
DONEGAL GROUP INC.
By: /s/ Xxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxxx, President
FOLKSAMERICA HOLDING COMPANY, INC.
By: /s/ Xxxxxx X. Xxxx
Xxxxxx X. Xxxx, Chief Executive Officer
