STOCK PURCHASE AGREEMENT
among
PIC INSURANCE GROUP, INC.
and
TRIROCK LIMITED PARTNERSHIP,
as Sellers
and
FRONT ROYAL, INC.,
as Buyer
Dated: December 6, 1996
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.....................................................1
ARTICLE II PURCHASE AND SALE OF STOCK.....................................11
2.1 Transfer of Stock..............................................11
2.2 Purchase Price.................................................11
2.3 Closing........................................................14
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF PIC..........................16
3A.1 Organization and Good Standing.................................16
3A.2 Authority, Validity and Enforceability.........................16
3A.3 No Violation or Breach.........................................16
3A.4 PIC Shares; Title to Shares....................................16
3A.5 Acquisition for Investment.....................................17
3A.6 Net Worth......................................................17
3A.7 No Brokers.....................................................17
3A.8 Foreign Person.................................................17
3A.9 Affiliations with Insurance Companies..........................17
3A.10 Consent........................................................18
3A.11 Transactions with Interested Persons...........................18
ARTICLE IIIB REPRESENTATIONS AND WARRANTIES OF TRIROCK......................18
3B.1 Organization and Good Standing.................................18
3B.2 Authority, Validity and Enforceability.........................18
3B.3 No Violation or Breach.........................................18
3B.4 Trirock Shares; Title to Shares................................19
3B.5 Net Worth......................................................19
3B.6 No Brokers.....................................................19
3B.7 Foreign Person.................................................19
3B.8 Consents.......................................................20
3B.9 Transactions with Interested Persons...........................20
ARTICLE IIIC REPRESENTATIONS AND WARRANTIES OF SELLERS......................20
3C.1 Organization and Good Standing.................................20
3C.2 Licenses and Permits...........................................20
3C.3 Capitalization.................................................21
(a) The Company................................................21
(b) Coal.......................................................21
(c) Comprehensive..............................................21
(d) Mid State..................................................21
(e) Premier....................................................21
(f) No Rights..................................................22
3C.4 No Violation or Breach.........................................22
3C.5 Subsidiaries...................................................23
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3C.6 Consents.......................................................23
3C.7 Statutory Statements...........................................23
3C.8 Insurance Regulatory Filings...................................23
3C.9 Insurance Issued...............................................24
3C.10 Transactions with Interested Persons...........................25
3C.11 Reinsurance Policies. ........................................25
3C.12 Litigation.....................................................26
3C.13 No Brokers.....................................................27
3C.14 Absence of Certain Changes.....................................27
3C.15 Taxes..........................................................28
3C.16 Contracts......................................................30
3C.17 Compliance with Other Instruments and Laws.....................30
3C.18 Employees......................................................30
3C.19 Employee Benefit Matters.......................................30
3C.20 Assets and Properties..........................................32
3C.21 Reserves.......................................................33
3C.22 Operating Insurance............................................33
3C.23 Bank Accounts..................................................33
3C.24 Charter Documents and By-laws..................................33
3C.25 Minute Books...................................................33
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER........................34
4.1 Organization and Good Standing.................................34
4.2 Capitalization.................................................34
4.3 Authority, Validity and Enforceability.........................36
4.4 No Violation or Breach.........................................36
4.5 Consents.......................................................37
4.6 Purchase for Investment........................................37
4.7 Licenses and Permits...........................................37
4.8 Litigation.....................................................38
4.9 No Brokers.....................................................38
4.10 Charter Documents and By-laws..................................38
4.11 Minute Books...................................................38
4.12 Statutory Statements...........................................39
4.13 Insurance Regulatory Filings...................................39
4.14 Reserves.......................................................40
4.15 Net Worth......................................................40
ARTICLE V CERTAIN MATTERS PENDING THE CLOSING............................40
5.1 Carry on in Regular Course.....................................40
5.2 Indebtedness...................................................41
5.3 Issuance of Stock..............................................41
5.4 Compensation...................................................41
5.5 Compliance with Law............................................42
5.6 Access to Information..........................................42
5.7 Cooperative; Best Efforts......................................42
5.8 Consents.......................................................43
5.9 Publicity......................................................43
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5.10 No Solicitation................................................43
5.11 Articles and By-laws...........................................43
5.12 Breaches of Representations and Warranties.....................44
ARTICLE VI CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF BUYER...........................................44
6.1 Compliance with Agreement......................................44
6.2 Proceedings and Instruments Satisfactory.......................44
6.3 No Litigation..................................................44
6.4 Representations and Warranties.................................44
6.5 Agreements.....................................................45
6.6 Additional Deliveries at Closing...............................45
6.7 Regulatory Approvals...........................................45
6.8 Consents.......................................................45
6.9 Resignation of Directors and Officers..........................46
6.10 Waiting Periods................................................46
6.11 Preferred Stock Sale Agreement.................................46
6.12 Premier Stock Purchase Agreement...............................46
6.13 Policyholders' Surplus.........................................46
6.14 Books and Records..............................................46
6.15 Disclaimers of Affiliation.....................................46
6.16 Certificate of Breaches........................................47
6.17 Phase II Environmental Report..................................47
ARTICLE VII CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS.....................................47
7.1 Compliance with Agreement......................................47
7.2 Proceedings and Instruments Satisfactory.......................47
7.3 No Litigation..................................................47
7.4 Representations and Warranties.................................47
7.5 Agreements.....................................................48
7.6 Additional Deliveries at Closing...............................48
7.7 Regulatory Approvals...........................................48
7.8 Consents.......................................................48
7.9 Waiting Periods................................................48
7.10 Preferred Stock Sale Agreement.................................49
7.11 Premier Stock Purchase Agreement...............................49
7.12 Certificate of Breaches........................................49
ARTICLE VIII CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS....................49
8.1 Records........................................................49
8.2 Access.........................................................49
8.3 Cooperation....................................................50
8.4 Confidentiality................................................50
8.5 Use of Name....................................................50
8.6 Non-Solicitation of Employees..................................51
8.7 President of the Company.......................................51
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8.8 Relocation of Business; Access.................................51
8.9 Trirock Not to Dissolve........................................51
8.10 Pittsburgh Mutual Insurance Company............................51
ARTICLE IX TAX............................................................52
9.1 Tax Losses.....................................................52
9.2 Contests.......................................................52
ARTICLE X INDEMNIFICATION................................................52
10.1 Survival of Representations and Warranties.....................52
10.2A Indemnification by PIC.........................................53
10.2B Indemnification by Trirock.....................................54
10.3 Indemnification by Buyer.......................................54
10.4 Limitation of Liability........................................55
10.5 Notice of Indemnity Claims.....................................56
10.6 Indemnity Amounts to be Computed on
After-Tax Basis................................................57
10.7 Arbitration....................................................57
10.8 Remedies Cumulative............................................58
ARTICLE XI TERMINATION....................................................59
11.1 Termination....................................................59
11.2 Effect of Termination..........................................59
11.3 Extension; Waiver..............................................59
ARTICLE XII DEPOSIT; PAYMENTS ON TERMINATION...............................60
12.1 Deposit........................................................60
12.2 Distribution...................................................60
12.3 Payment to Sellers.............................................60
12.4 Payment to Buyer...............................................61
ARTICLE XIII MISCELLANEOUS..................................................61
13.1 Entire Agreement...............................................61
13.2 Expenses.......................................................61
13.3 Governing Law..................................................62
13.4 Assignment.....................................................62
13.5 Further Assurances.............................................62
13.6 Notices........................................................62
13.7 Counterparts; Headings.........................................63
13.8 Interpretation.................................................63
13.9 Severability...................................................63
13.10 No Reliance....................................................63
13.11 Amendment......................................................64
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EXHIBITS
A - Amended and Restated License Agreement
B - Form of Charter Amendment
C - Form of Escrow Agreement (Deposit)
D - Form of Lease
E(1) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxxxxx X. Xxxxxxxx
E(2) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxxxxx X. XxXxxxxx, Xx.
E(3) - Form of Non-Competition and Non-Solicitation
Agreement with PIC
E(4) - Form of Non-Competition and Non-Solicitation
Agreement with Pittsburgh Mutual Insurance
Company
E(5) - Form of Non-Competition and Non-Solicitation
Agreement with Premier Auto Insurance Company
E(6) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxx X. XxXxxxxx, Xx.
E(7) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxxx X. Xxxxxxxx
E(8) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxxxxxx X. Xxxxxx
E(9) - Form of Non-Competition and Non-Solicitation
Agreement with Xxxxx X. Xxxxx
F - Form of Option Agreement
G - Form of Preferred Stock Sale Agreement
H - Form of Premier Stock Purchase Agreement
I - Form of Shareholders Agreement
J - Form of Trirock Note
8.8 - RIC Matters
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STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of December 6, 1996, among PIC INSURANCE
GROUP, INC., a Pennsylvania stock insurance company ("PIC"), and TRIROCK LIMITED
PARTNERSHIP, a Pennsylvania limited partnership ("Trirock"; Trirock and PIC
together, "Sellers" and individually, a "Seller"), and FRONT ROYAL, INC., a
North Carolina corporation ("Front Royal" or "Buyer").
RECITALS
WHEREAS, PIC owns, beneficially and of record, 250,000 shares of Class A
Common Stock, no par value (the "Class A Common Stock"), of Rockwood Casualty
Insurance Company, a Pennsylvania stock insurance company (the "Company"),
constituting 50% of all of the issued and outstanding shares of Class A Common
Stock, and Trirock owns, beneficially and of record, 250,000 shares of Class A
Common Stock, no par value, constituting 50% of all of the issued and
outstanding shares of Class A Common Stock;
WHEREAS, PIC owns, beneficially and of record, 571,961 shares of Class B
Common Stock, no par value (the "Class B Common Stock"), of the Company,
constituting all of the issued and outstanding shares of Class B Common Stock;
and
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of the
outstanding capital stock of the Company.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
"Affiliate" shall mean, with respect to a specified person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person or entity specified.
"Agreement" shall mean this Stock Purchase Agreement, together with the
Exhibits and Schedules attached hereto, the Disclosure Schedule of Sellers and
the Disclosure Schedule of
Buyer, as the same may be amended from time to time in accordance with the terms
hereof.
"Amended and Restated License Agreement" shall mean the agreement between
the Company and Rockwood Asset Management, Inc., in the form of Exhibit A.
"best knowledge of Buyer" shall mean the actual knowledge of any officer of
Buyer, after reasonable inquiry.
"best knowledge of Sellers" shall mean the actual knowledge of any general
partner of Trirock or any officer of PIC, after reasonable inquiry, provided
that the knowledge of any limited partner of Trirock shall not in and of itself
be deemed to be the actual knowledge of any general partner of Trirock.
"Business Day" shall mean any day except a Saturday, Sunday or any day on
which United States chartered banking institutions are required by Law to close.
"Buyer" shall mean Front Royal, Inc., a North Carolina corporation.
"Buyer Basket" shall have the meaning set forth in Section 10.4.
"Buyer Cap" shall have the meaning set forth in Section 10.4.
"Buyer Closing Certificate" shall mean the certificate of an officer of
Buyer, dated as of the Closing Date, with respect to Section 7.1, Section 7.4
and the authorizing resolutions of the Board of Directors of Buyer.
"Charter Amendment" shall mean the Articles of Amendment of Front Royal,
Inc. Authorizing Series A Convertible Preferred Stock, substantially in the form
of Exhibit B.
"Class A Common Stock" shall mean the Class A Common Stock, no par value,
of the Company.
"Class B Common Stock" shall mean the Class B Common Stock, no par value,
of the Company.
"Closing" shall mean the closing of the transactions contemplated by this
Agreement as provided in Section 2.3.
"Closing Date" shall mean a date not later than December 31, 1996 which is
three Business Days after satisfaction or waiver of the conditions set forth in
Sections 6.8 and 7.7 [regulatory approvals], 6.9 and 7.8 [consents], and 6.11
and 7.9 [HSR] or such other date as the Sellers and Buyer may mutually agree
upon.
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"Coal" shall mean Coal Operators Indemnity Company, a Pennsylvania
corporation.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Colony Insurance" shall mean Colony Insurance Company, a Virginia
corporation.
"Colony Management" shall mean Colony Management Services, Inc., a Virginia
corporation.
"Commissioner" shall mean the Pennsylvania Insurance Commissioner, her
predecessors and successors.
"Companies" shall mean, collectively, the Company and the Company
Subsidiaries.
"Company" shall mean Rockwood Casualty Insurance Company, a Pennsylvania
stock insurance company.
"Company Annual Statements" shall mean the annual statements filed by the
Company on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, filed with the Department pursuant to the
Pennsylvania Insurance Law (including management's discussion and analysis and
the supporting memorandum to the actuarial opinions given in connection with
such Company Annual Statements).
"Company Quarterly Statements" shall mean the quarterly statements of the
Companies for the three-month periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, filed with the Department pursuant to the Pennsylvania
Insurance Law.
"Company Statutory Statements" shall mean, collectively, the Company Annual
Statements and the Company Quarterly Statements.
"Company Subsidiaries" shall mean Coal, Comprehensive, Mid State and
Premier.
"Comprehensive" shall mean Comprehensive Casualty Services, Inc., a
Pennsylvania corporation.
"Contracts" shall have the meaning set forth in Section 3C.16.
"Control" shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a person or
entity, whether through the ownership of voting securities, by contract or
otherwise.
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"Cut-Off Date" shall have the meaning set forth in Section 2.2(b).
"December 31, 1996 Annual Statement" shall have the meaning set forth in
Section 2.2(b).
"Deficiency" shall have the meaning set forth in Section 2.2(b).
"Department" shall mean the Pennsylvania Insurance Department.
"Deposit" shall have the meaning set forth in Section 12.1.
"Disclosure Schedule of Buyer" shall mean the disclosure schedule, dated
the date hereof, furnished by Buyer to Sellers and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
"Disclosure Schedule of Sellers" shall mean the disclosure schedule, dated
the date hereof, furnished by Sellers to Buyer and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
"Employee Plans" shall mean the employee benefit plans of the Companies and
the ERISA Affiliates, which shall include without limitation any contract,
agreement, loan or arrangement which is an "employee benefit plan," as defined
in Section 3(3) of ERISA.
"Employees" shall have the meaning set forth in Section 3C.18 hereof.
"Equipment Leases" shall mean the equipment lease obligations of any of the
Companies listed in the Disclosure Schedule of Sellers.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, which with any of the Companies is treated as a single employer
under Code Section 414(b), (c), (m) or (o).
"Escrow Agent (Deposit)" shall mean Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP.
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"Escrow Agent (Holdback)" shall mean such third party mutually acceptable
to Buyer, on the one hand, and Sellers, on the other hand.
"Escrow Agreement (Deposit)" shall mean the Escrow Agreement, dated as of
the date hereof, among Sellers, Buyer and the Escrow Agent (Deposit),
substantially in the form of Exhibit C.
"Escrow Agreement (Holdback)" shall mean the Escrow Agreement, dated as of
the Closing Date, among Sellers, Buyer and Escrow Agent (Holdback), mutually
acceptable to such parties, provided that the terms thereof shall be consistent
with Section 2.2(b).
"Fort Washington" shall mean Fort Washington Holdings, Inc., a Pennsylvania
corporation, all of the outstanding capital stock of which is owned by Xxxxxxx
X. Xxxxxxxx and Xxxxxxx X. XxXxxxxx, Xx.
"FREIM" shall mean Front Royal Environmental Insurance Management, Inc., a
Virginia corporation.
"FRESI" shall mean Front Royal Environmental Services, Inc., North Carolina
corporation.
"FRETS" shall mean Front Royal ETS, Inc., a Virginia corporation.
"Front Royal" shall mean Front Royal, Inc., a North Carolina corporation.
"Front Royal Annual Statements" shall mean, collectively, the annual
statements filed by each of Front Royal Insurance, Xxxxxxxx Insurance and Colony
Insurance on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, filed with the Virginia Department of Insurance or
the Ohio Department of Insurance, as the case may be, pursuant to the Virginia
Insurance Law and the Ohio Insurance Law, respectively (including management's
discussion and analysis and the supporting memorandum to the actuarial opinions
given in connection with each such Front Royal Annual Statement).
"Front Royal Class A Stock" shall have the meaning set forth in Section
4.2.
"Front Royal Class B Stock" shall have the meaning set forth in Section
4.2.
"Front Royal Insurance" shall mean Front Royal Insurance Company, a
Virginia corporation.
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"Front Royal Preferred Stock" shall mean the Series A Convertible Preferred
Stock, par value $100 per share, of Buyer.
"Front Royal Quarterly Statements" shall mean, collectively, the quarterly
statements of each of Front Royal Insurance, Xxxxxxxx Insurance and Colony
Insurance for the three-month periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, filed with the Virginia Department of Insurance or the Ohio
Department of Insurance, as the case may be, pursuant to the Virginia Insurance
Law and the Ohio Insurance Law, respectively.
"Front Royal Statements" shall mean, collectively, the Front Royal Annual
Statements and the Front Royal Quarterly Statements.
"Front Royal Subsidiaries" shall mean Colony Management, Colony Insurance,
FREIM, FRESI, Xxxxxxxx Insurance, Front Royal Insurance and FRETS.
"Xxxxxxxx Insurance" shall mean Xxxxxxxx Insurance Company, a Virginia
corporation.
"HSR Act" shall mean Section 7A of the Xxxxxxx Act (Title II of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976), as amended, and the rules
and regulations promulgated thereunder.
"Indemnity Claim" shall have the meaning set forth in Section 9.5.
"Intellectual Property" shall have the meaning set forth in Section 3C.20
hereof.
"Law" shall mean any federal, state, local or other law or governmental
requirement of any kind, and the rules, regulations, permits, licenses and
orders promulgated thereunder.
"Lease" shall mean the lease between the Company and Rockwood Asset
Management, Inc., with respect to the properties located at (i) 000 Xxxx Xxxxxx,
Xxxxxxxx, Xxxxxxxxxxxx 00000, and (ii) 000 Xxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxxx
00000, in the form of Exhibit D.
"Lien" shall mean any lien, pledge, charge, security interest, encumbrance,
title retention agreement, restriction, advance, claim or option.
"Material Adverse Effect" shall mean (i) with respect to the Companies,
reasonably likely to have an adverse effect greater than $150,000 on the
properties, business, results of operations, condition (financial or otherwise)
or affairs of the Companies, taken as a whole, (ii) with respect to a Seller,
reasonably likely to have an adverse effect greater than $150,000 on the
properties, business, results of operations, condition (financial
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or otherwise) or affairs of such Seller and its Subsidiaries, taken as a whole,
and (iii) with respect to Buyer reasonably likely to have an adverse effect
greater than $150,000 on the properties, business, results of operations,
condition (financial or otherwise) or affairs of Front Royal and the Front Royal
Subsidiaries, taken as a whole.
"Mid State" shall mean Mid State Insurance Underwriters, Inc., a
Pennsylvania corporation.
"Non-Compete and Non-Solicitation Agreements" shall mean, collectively, the
agreements between Buyer and each of (1) Xxxxxxx X. Xxxxxxxx, (2) Xxxxxxx X.
XxXxxxxx, Xx. (3) PIC, (4) Pittsburgh Mutual Insurance Company, (5) Premier, (6)
Xxxx X. XxXxxxxx, Xx., (7) Xxxxx X. Xxxxxxxx, (8) Xxxxxxxx X. Xxxxxx and (9)
Xxxxx X. Xxxxx, each dated as of the Closing Date, in the form of Exhibits E(1),
E(2), E(3), E(4), E(5), E(6), E(7), E(8) and E(9), respectively.
"Ohio Insurance Law" shall mean all of the statutes and regulations of the
State of Ohio applicable to insurance companies, as in effect on the Closing
Date.
"Operational Representations of Buyer" shall mean the representations and
warranties of Buyer set forth in Sections 4.2(b), (c), (d), (e), (f), (g), (h)
and (i), 4.5, 4.6, 4.7, 4.8, 4.9, 4.11, 4.12, 4.13, 4.14, 4.15 and 4.16.
"Operational Representations of Sellers" shall mean the representations and
warranties of either or both Sellers set forth in Sections 3A.6, 3A.7, 3A.8,
3A.9, 3A.10, 3A.11, 3B.5, 3B.6, 3B.7, 3B.8, 3B,9, 3C.2, 3C.3(b), (c), (d) and
(e), 3C.5, 3C.6, 3C.7, 3C.8, 3C.9, 3C.10, 3C.11, 3C.12, 3C.13, 3C.14, 3C.15,
3C.16, 3C.17, 3C.18, 3C.19, 0X.00, 0X.00, 0X.00, 0X.00, 3C.25 and 3C.26.
"Opinion of Buyer's Counsel" shall mean, collectively, (a) the opinion of
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP, counsel to Buyer, with respect
to New York law and Federal law, (b) the opinion of local counsel to Buyer, with
respect to applicable laws other than the State of New York (including North
Carolina), and (c) the opinion of Saul, Ewing, Xxxxxx & Xxxx, special
Pennsylvania insurance regulatory counsel to Buyer, each in form and substance
reasonably acceptable to Sellers.
"Opinion of Trirock's Counsel" shall mean the opinion of Xxxxxxxxxxx &
Xxxxxxxx LLP, counsel to Trirock, in form and substance reasonably acceptable to
Buyer.
"Opinion of PIC's Counsel" shall mean the opinion of Dilworth, Paxson,
Xxxxxx & Xxxxxxxx LLP, counsel to PIC, in form and substance reasonably
acceptable to Buyer.
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"Option Agreement" shall mean the Option Agreement, dated as of the Closing
Date, between Buyer and Fort Washington, in the form of Exhibit F.
"Ownership Period" shall have the meaning set forth in Section 3C.9.
"Pennsylvania Insurance Law" shall mean all of the statutes and regulations
of the Commonwealth of Pennsylvania applicable to insurance companies, as in
effect on the Closing Date.
"Pension Plan" shall have the meaning set forth in Section 3C.19.
"Permits" shall mean all licenses, permits and other governmental
authorizations, registrations and approvals required to conduct the business of
(i) with respect to any of the Companies, the Companies, and (ii) with respect
to Buyer, Buyer and the Front Royal Subsidiaries.
"Permitted Lien" shall mean any lien described in the Disclosure Schedule
of Sellers.
"PIC" shall mean PIC Insurance Group, Inc., a Pennsylvania stock insurance
company.
"PIC Basket" shall have the meaning set forth in Section 2.2(b).
"PIC Cap" shall have the meaning set forth in Section 10.4.
"PIC Shares" shall have the meaning set forth in Section 2.1.
"PIC Closing Certificate" shall mean the certificate of an officer of PIC,
dated as of the Closing Date, with respect to Section 6.1, Section 6.4 and the
authorizing resolutions of the Board of Directors of the Buyer.
"Preferred Stock Sale Agreement" shall mean the Purchase and Sale
Agreement, dated as of the Closing Date, between PIC, as seller, and Fort
Washington, as buyer, in the form of Exhibit G.
"Premier" shall mean Premier Auto Insurance Company, a Pennsylvania stock
insurance company f/k/a Somerset Casualty Insurance Company.
"Premier Stock Purchase Agreement" shall mean the Stock Purchase Agreement,
dated as of the Closing Date, between the Company, as seller, and Fort
Washington, as buyer, in the form of Exhibit H.
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"Pre-Ownership Period" shall have the meaning set forth in Section 3C.9.
"Purchased Stock" shall have the meaning set forth in Section 2.1.
"Purchase Price" shall have the meaning set forth in Section 2.2.
"Required Final Surplus Amount" shall have the meaning set forth in Section
2.2(b).
"Reserves" as at any date with respect to any of the Companies shall mean
the loss, loss adjustment and unearned premium reserves and other similar
amounts with respect to losses, claims, discounts and expenses in connection
with such Company's insurance business.
"SAP" shall mean statutory accounting practices required, prescribed or
permitted by the Commissioner, consistently applied throughout the specified
period and in the comparable period in the immediately preceding year.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Sellers" shall mean PIC and Trirock.
"Sellers' Objection" shall have the meaning set forth in Section 2.2(b).
"Shareholders Agreement" shall mean the Shareholders and Registration
Rights Agreement, dated as of the Closing Date, among Buyer, Xxxxxxx X.
Xxxxxxxx, Xxxxxxx X. XxXxxxxx, Xx. and Fort Washington, substantially in the
form of Exhibit I.
"Software Licenses" shall mean all licenses related to software used by any
of the Companies, including, without limitation, those listed in the Disclosure
Schedule of Sellers.
"Subsidiary" of any person or entity shall mean any corporation or other
business entity a majority of the voting stock (or other beneficial interests)
of which, entitled to vote for the election of directors (or their
counterparts), is owned by such person or entity or a Subsidiary of such person
or entity.
"Surplus" shall have the meaning set forth in Section 2.2(b).
"Surplus Certificate" shall mean, collectively, (i) the certificate from
PIC, (ii) the certificate from Trirock and (iii)
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the certificate from the chief financial officer of the Company, in each case
certifying that as of the Closing Date, the Surplus of the Company is equal to
or greater than $50,000,000.
"Surplus Deficiency Notice" shall have the meaning set forth in Section
2.2(b).
"Tax Losses" shall mean any taxes, interest, penalties and other amounts
required to be paid to any federal, state or local taxing authority by any of
the Companies on account of or arising out of any periods ending on or prior to
the Closing Date, net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Companies by reason of the facts and circumstances
giving rise to the indemnification pursuant to Article IX (e.g. deductions
disallowed for a period ending on or prior to the Closing Date that are allowed
after the Closing Date), except (i) to the extent the same have been reserved
for in the Company Annual Statements, in the Company Quarterly Statements or,
with respect to the quarter ending December 31, 1996, the internal financial
statements of the Companies as disclosed to Buyer, (ii) with respect to interest
payments, only the after tax costs of such interest shall be included in
computing Tax Losses and (iii) Tax Losses shall not include taxes or interest
thereon arising out of any future adjustment that may be made to the Reserves
set forth in any tax return of the Companies.
"Triangle Engineering" shall mean Triangle Engineering, Inc., a North
Carolina corporation.
"Trirock" shall mean Trirock Limited Partnership, a Pennsylvania limited
partnership.
"Trirock Basket" shall have the meaning set forth in Section 10.4.
"Trirock Cap" shall have the meaning set forth in Section 10.4.
"Trirock Closing Certificate" shall mean the certificate of a general
partner of Trirock, dated as of the Closing Date, with respect to Section 6.1,
Section 6.4 and the authorizing resolutions of the general partners of Trirock.
"Trirock Note" shall have the meaning set forth in Section 2.2(a)(iii).
"Trirock Shares" shall have the meaning set forth in Section 2.1.
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"Virginia Insurance Law" shall mean all of the statutes and regulations of
the State of Virginia applicable to insurance companies, as in effect on the
Closing Date.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include the other gender, (b) words using the singular or
plural number also include the plural or singular number, respectively, (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement, (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement, (e) the phrase "in the
ordinary course of business and consistent with past practice" refers to the
business, operations, affairs, and practice of the Company consistent with past
practices of such business, operations and affairs, (f) the term "including" and
other forms of such term, with respect to any matter or thing, means "including
but not limited to" such matter or thing, (g) all reference to "dollars" or "$"
refer to currency of the United States of America and (h) any undefined term in
this Agreement shall have the meaning customarily ascribed to it by the casualty
insurance industry.
ARTICLE II
PURCHASE AND SALE OF STOCK
2.1 Transfer of Stock. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties contained herein, on the
Closing Date, (a) PIC shall sell, convey, transfer, assign and deliver to Buyer,
and Buyer shall acquire from PIC, 250,000 shares of Class A Common Stock,
constituting 50% of the issued and outstanding shares of Class A Common Stock,
and 571,961 shares of Class B Common Stock, constituting all of the issued and
outstanding shares of Class B Common Stock (together, the "PIC Shares"), and (b)
Trirock shall sell, convey, transfer, assign and deliver to Buyer, and Buyer
shall acquire from Trirock, 250,000 shares of Class A Common Stock, constituting
50% of the issued and outstanding shares of Class A Common Stock (the "Trirock
Shares"; together with the PIC Shares, the "Purchased Stock"). In full payment
for the Purchased Stock, Buyer shall pay the Purchase Price, as provided in
Section 2.2.
2.2 Purchase Price. (a) The consideration for the Purchased Stock (the
"Purchase Price") shall be as follows:
(i) subject to clause (b) below, Section 2.3(b) and Article XII
[Deposit; Payments on Termination], Buyer shall pay in cash the total sum
of $28,320,000 (the "Cash Payment") as follows:
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(1) to PIC, for the shares of Class A Common Stock included in
the PIC Shares $13,180,000; and
(2) to PIC, for the shares of Class B Common Stock included in
the PIC Shares $15,140,000.
(ii) Buyer shall issue to PIC, in further consideration for the Class
B Common Stock included in the PIC Shares, Front Royal Preferred Stock
having an aggregate stated value of $15,500,000.
(iii) subject to clause (b) below, Section 2.3(b) and Article XII
[Deposit; Payment on Termination], Buyer shall issue and deliver to Trirock
in consideration for the Trirock Shares, a promissory note, dated the
Closing Date, in the principal amount of $13,180,000, in the form of
Exhibit J (the "Trirock Note").
(b) (i) On the Closing Date, Buyer shall deliver $766,667 of the Cash
Payment and on the date of payment under the Trirock Note, Buyer shall deliver
$233,333 of such monies then due under the Trirock Note (such $1,000,000 in the
aggregate, the "Holdback") to the Escrow Agent (Holdback) which shall hold the
Holdback in escrow pursuant to the terms of the Escrow Agreement (Holdback). The
fees and expenses of the Escrow Agent (Holdback) shall be borne equally by
Buyer, on the one hand, and Sellers on the other hand.
(ii) On or before the earlier of (1) August 1, 1997 and (2) 30 days after
the receipt by Buyer of the December 31, 1996 Annual Statement in form for
filing with the Department (including receipt of audit certification from
Parente, Xxxxxxxx, Xxxxxxx, Xxxxx & Associates) (the "Cut-Off Date"), Buyer may
deliver to Sellers a Surplus Deficiency Notice (as hereinafter defined) setting
forth the amount, if any (such amount, the "Deficiency"), by which the amount
shown on the line entitled "Surplus As Regards Policyholders" plus the amount
shown on the line entitled "Excess of Statutory Reserves Over Statement
Reserves, Schedule P Interrogatories" (the "Surplus"), as set forth in the
Company's annual statement on the NAIC prescribed convention blank for the year
ended December 31, 1996 (the "December 31, 1996 Annual Statement") filed with
the Department pursuant to the Pennsylvania Insurance Law, is less than an
amount (the "Required Final Surplus Amount") equal to (A) $50,000,000 or (B) if
at Closing Sellers failed to deliver a Surplus Certificate and certified to
Buyer a lesser amount of Surplus which would be shown on the December 31, 1996
Annual Statement, and Buyer elected to consummate the Closing hereunder, the
lesser amount as to which Sellers so certified. Such Surplus shall be determined
as follows: Buyer will cause the Company to close its books as of December 31,
1996 and prepare the December 31, 1996 Annual Statement on a basis consistent
(including
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actuarial assumptions and estimation methods) with that of the prior years and
in accordance with the statutory accounting principles prescribed or permitted
by the Department. The December 31, 1996 Annual Statement will be audited by
Parente, Xxxxxxxx, Xxxxxxx, Xxxxx & Associates, which firm shall deliver an
unqualified opinion, and the adequacy of loss reserves will be certified by
Xxxxx Associates, Inc. The "Surplus Deficiency Notice" shall mean, for purposes
hereof, such notice delivered to Sellers which (w) is in writing, (x) sets forth
the Deficiency, (y) sets forth in reasonable detail the basis for Buyer's claim
that the Surplus was less than the Required Final Surplus Amount as of December
31, 1996 and (z) includes a copy of the December 31, 1996 Annual Statement.
(iii) In the event that on or before the Cut-Off Date, Buyer delivers to
Sellers, with a copy to the Escrow Agent (Holdback), the Surplus Deficiency
Notice, then the Escrow Agent (Holdback) shall continue to hold the Holdback
pursuant to the terms of the Escrow Agreement (Holdback). In the event that
within 30 days of delivery of the Surplus Deficiency Notice, Sellers deliver to
Buyer written notice of its objection thereto, with a copy to the Escrow Agent
(Holdback), which objection shall set forth in reasonable detail the basis for
the Sellers' objection to the Surplus Deficiency Notice (the "Sellers
Objection"), then (A) the Escrow Agent (Holdback) shall continue to hold the
Holdback pursuant to the terms of the Escrow Agreement (Holdback) and (B)
Sellers and Buyer shall commence negotiations and use their best efforts to
resolve such dispute and if they are unable to so resolve such dispute within 30
days of the delivery of the Sellers Objection, (1) such dispute shall be
submitted to arbitration in accordance with Section 10.7 and (2) during the
pendency of such arbitration proceedings as provided therein, the Escrow Agent
(Holdback) shall continue to hold the Holdback pursuant to the terms of the
Escrow Agreement (Holdback). Following delivery of the Sellers Objection, Buyer
shall cooperate with Sellers to enable Sellers to prepare an alternative
calculation of Surplus and shall allow Sellers access in accordance with Section
8.2 for that purpose; provided, however, that Buyer shall not be required to
incur any out-of-pocket expenses in so cooperating.
(iv) If Sellers do not deliver to Buyer the Sellers Objection within 30
days of the delivery of the Surplus Deficiency Notice, then upon the written
direction of Buyer to Escrow Agent (Holdback), with a copy to Sellers, the
Escrow Agent (Holdback) shall deliver to an account or accounts designated by
Buyer in immediately available funds an amount equal to the Deficiency plus any
interest earned thereon, and (a) 23.3% of the balance thereof, if any, and any
interest earned thereon, shall be delivered to an account or accounts designated
by Trirock and (B) 76.7% of the balance thereof, if any, and any interest earned
thereon, shall be delivered to an account or accounts designated
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by PIC. In the event that the amount of the Deficiency exceeds the amount of the
Holdback, plus interest thereon, Trirock shall be liable for such excess up to
an amount equal to 23.3% thereof without regard to the Trirock Basket and PIC
shall be liable for such excess up to an amount equal to 76.7% thereof without
regard to the PIC Basket.
(v) In the event that Buyer does not deliver a Surplus Deficiency Notice on
or before the Cut-Off Date, then upon the written direction of Sellers to Escrow
Agent (Holdback), with a copy to Buyer, the Escrow Agent (Holdback) shall
deliver in immediately available funds (A) to an account or accounts designated
by Trirock an amount equal to 23.3% of the Holdback, plus any interest earned
thereon, and (B) to an account or accounts designated by PIC an amount equal to
76.7% of the Holdback, plus any interest earned thereon.
(vi) Delivery of a Surplus Deficiency Notice, or the failure to deliver the
same, on or before the Cut-Off Date shall not be deemed a waiver by Buyer of any
rights it may have pursuant to this Agreement (including, without limitation,
Article X [Indemnification]) or otherwise and shall not be deemed a release of
Sellers obligations or liabilities under this Agreement. Notwithstanding the
foregoing, in the event that the Surplus as set forth in the December 31, 1996
Annual Statement and calculated in accordance with Section 2.2(b)(ii) is equal
to or greater than the Final Surplus Amount and the Holdback is released to
Sellers pursuant to the terms hereof and the Escrow Agreement (Holdback), then
Buyer shall not thereafter be entitled to recover from either Seller any
Deficiency or alleged Deficiency.
(vii) Deliveries of a Surplus Deficiency Notice and the Sellers Objection
shall be by hand, overnight courier or telecopy pursuant to Section 13.6 and
shall be deemed delivered as provided therein.
2.3 Closing. (a) The Closing will take place at the offices of Xxxxxxxx
Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, at 10:00 a.m., local time, on the Closing Date.
(b) Concurrently with the Closing, Buyer shall cause the Company to
distribute to PIC $6,519,500 and concurrently with the payment of monies due
under the Trirock Note, Buyer shall cause the Company to distribute to Trirock
$1,980,500, which distributions shall be deemed a return of capital to Buyer. Of
such $8,500,000 distribution, (1) $6,519,500 shall be credited against the Cash
Payment otherwise payable to PIC at Closing and (2) $1,980,500 shall be credited
against the monies otherwise due and payable to Trirock under the terms of the
Trirock Note.
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(c) At the Closing, Buyer shall deliver the following:
(i) $27,553,000 of the Cash Payment (subject to clause (d) below) by
wire transfer of immediately available funds to an account or accounts
designated by PIC;
(ii) $766,667 of the Holdback by wire transfer of immediately
available funds to an account designated by the Escrow Agent (Holdback);
(iii) one or more certificates issued to PIC representing 155,000
shares of Front Royal Preferred Stock having an aggregate stated value of
$15,500,000; and
(iv) the Trirock Note in the principal amount of $13,180,000.
(d) At the Closing, the Escrow Agent (Deposit) shall deliver pursuant to
Section 12.2 $766,667 of the Deposit and any interest earned thereon.
(e) At the Closing, PIC shall deliver the following to Buyer:
(i) a certificate or certificates representing, in the aggregate,
250,000 shares of Class A Common Stock, constituting 50% of the issued and
outstanding shares of Class A Common Stock, accompanied by stock powers
duly endorsed in blank, with all required transfer taxes or stamps paid for
or affixed thereto, free and clear of all Liens; and
(ii) one or more certificates representing, in the aggregate, 571,961
shares of Class B Common Stock, constituting all of the issued and
outstanding shares of Class B Common Stock, accompanied by stock powers
duly endorsed in blank, with all required transfer taxes or stamps paid for
or affixed thereto, free and clear of all Liens.
(f) At the Closing, Trirock shall deliver to Buyer one or more certificates
representing 250,000 shares of Class A Common Stock, constituting 50% of the
issued and outstanding shares of Class A Common Stock, accompanied by stock
powers duly endorsed in blank, with all required transfer taxes or stamps paid
for or affixed thereto, free and clear of all Liens.
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ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF PIC
PIC represents and warrants to Buyer as follows:
3A.1 Organization and Good Standing. PIC is a stock insurance company duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
3A.2 Authority, Validity and Enforceability. PIC has full corporate power
and authority to execute, deliver and perform its obligations and to consummate
the transactions required of it under or contemplated by this Agreement. The
execution, delivery and performance by PIC of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of PIC. No other action or proceeding on
the part of PIC is necessary to authorize this Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by PIC and constitutes a valid, legal and binding
obligation of PIC, enforceable in accordance with its terms.
3A.3 No Violation or Breach. The execution, delivery and performance by PIC
of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
(a) violate or require any consent or approval under any provision of the
certificate of incorporation or by-laws of PIC; or
(b) except as set forth on Schedule 3A.10 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which PIC is a party or is otherwise
subject; or
(c) result in any Lien upon any properties, assets, business or agreements
of PIC howsoever arising, except for such Liens which would not have a Material
Adverse Effect with respect to PIC.
3A.4 PIC Shares; Title to Shares. (a) The PIC Shares consist of (i) 250,000
issued and outstanding shares of Class A Common Stock owned beneficially and of
record by PIC, free and clear of any Liens, and (ii) 571,961 issued and
outstanding shares of Class B Common Stock owned beneficially and of record by
PIC, free and clear of any Liens. All of such outstanding
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shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Upon delivery to Buyer of certificates representing the PIC Shares,
Buyer will acquire good and valid title to the PIC Shares, free and clear of any
Liens other than (a) Liens that arise solely as a result of Buyer's actions and
(b) restrictions on transferability generally imposed on transfers of securities
by federal and state securities laws and state insurance laws.
3A.5 Acquisition for Investment. PIC will require Fort Washington to agree
that it is acquiring from PIC the Front Royal Preferred Stock pursuant to the
Preferred Stock Sale Agreement for Fort Washington's own account for investment
and not with a view to any distribution thereof within the meaning of the
Securities Act, and that the issuance of the Front Royal Preferred Stock
pursuant hereto is intended to be exempt from the Securities Act pursuant to
Section 4(2) thereof, and the Front Royal Preferred Stock may not be resold or
otherwise transferred except pursuant to an effective registration statement or
an exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws.
3A.6 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of PIC as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise"
of PIC as of the Closing Date, as such terms are determined in accordance with
applicable federal and state laws governing determinations of the insolvency of
debtors.
3A.7 No Brokers. Other than counsel, PIC has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons listed on Schedule 3A.7 of the Disclosure Schedule of
Sellers, all of whose fees shall be paid by PIC.
3A.8 Foreign Person. PIC is not a "foreign person" within the meaning of
Section 1445(b)(2) of the Code, and an affidavit to such effect will be
delivered by PIC at Closing.
3A.9 Affiliations with Insurance Companies. Neither Xxxxxxx X. Xxxxxxxx nor
Xxxxxxx X. XxXxxxxx, Xx. is now or has ever been an officer, director or
affiliate (as defined in Section 1 of the Insurance Holding Company System
Regulatory Act) and PIC is not now nor has it ever been such an affiliate of any
insurance company that has been declared insolvent, liquidated or subject of
supervisory orders from any regulatory authority, other than the Company.
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3A.10 Consent. Except as set forth in Schedule 3A.10 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained by PIC in connection with the execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
3A.11 Transactions with Interested Persons. Except as disclosed in Schedule
3A.11 of the Disclosure Schedule of Sellers, no officer or director of PIC or
any of its Affiliates owns, directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
customer, competitor or supplier of any of the Companies or any person or entity
which has a contract or arrangement with any of the Companies. Schedule 3A.11 of
the Disclosure Schedule of Sellers lists or describes all contracts between PIC
or any of its Affiliates and any of the Companies and all services provided by
PIC or any of its Affiliates to any of the Companies.
ARTICLE IIIB
REPRESENTATIONS AND WARRANTIES OF TRIROCK
Trirock represents and warrants to Buyer as follows:
3B.1 Organization and Good Standing. Trirock is a limited partnership duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania.
3B.2 Authority, Validity and Enforceability. Trirock has full power and
authority to execute, deliver and perform its obligations and to consummate the
transactions required of it under or contemplated by this Agreement. The
execution, delivery and performance by Trirock of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the partners of Trirock. No other action or proceeding on the part
of Trirock is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Trirock and constitutes a valid, legal and binding
obligation of Trirock, enforceable in accordance with its terms.
3B.3 No Violation or Breach. The execution, delivery and performance by
Trirock of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
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(a) violate or require any consent or approval under any provision of the
Certificate of Limited Partnership of Trirock or the Limited Partnership
Agreement among the partners of Trirock; or
(b) except as set forth on Schedule 3B.8 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which Trirock is a party or is otherwise
subject; or
(c) result in any Lien upon any properties, assets, business or agreements
of Trirock howsoever arising, except for such Liens which would not have a
Material Adverse Effect with respect to Trirock.
3B.4 Trirock Shares; Title to Shares. (a) The Trirock Shares consist of
250,000 issued and outstanding shares of Class A Common Stock owned beneficially
and of record by Trirock, free and clear of any Liens. All such outstanding
shares have been duly authorized and validly issued and are fully paid and
non-assessable.
(b) Upon delivery to Buyer of certificates representing the Trirock Stock,
Buyer will acquire good and valid title to the Trirock Stock, free and clear of
any Liens other than (a) Liens that arise solely as a result of Buyer's actions
and (b) restrictions on transferability generally imposed on transfers of
securities by federal and state securities laws and state insurance laws.
3B.5 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Trirock as of the Closing
Date shall be greater than the amount of all "liabilities, contingent or
otherwise" of Trirock as of the Closing Date, as such terms are determined in
accordance with applicable federal and state laws governing determinations of
the insolvency of debtors.
3B.6 No Brokers. Other than counsel, Trirock has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of any of the transactions contemplated hereby,
other than those persons listed on Schedule 3B.6 of the Disclosure Schedule of
Sellers, all of whose fees shall be paid by Trirock.
3B.7 Foreign Person. Trirock is not a "foreign person" within the meaning
of Section 1445(b)(2) of the Code and an affidavit to such effect will be
delivered by Trirock at Closing.
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3B.8 Consents. Except as set forth in Schedule 3B.8 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained by Trirock in connection with the execution, delivery and
performance of this Agreement.
3B.9 Transactions with Interested Persons. Except as disclosed in Schedule
3B.9 of the Disclosure Schedule of Sellers, no officer or director of Trirock or
any of its Affiliates owns, directly or indirectly, on an individual or joint
basis, any material interest in, or serves as an officer or director of, any
customer, competitor or supplier of any of the Companies or any person or entity
which has a contract or arrangement with any of the Companies. Schedule 3B.9 of
the Disclosure Schedule of Sellers lists or describes all contracts between
Trirock or any of its Affiliates and any of the Companies and all services
provided by Trirock or any of its Affiliates to any of the Companies.
ARTICLE IIIC
REPRESENTATIONS AND WARRANTIES OF SELLERS
Each of PIC and Trirock represents and warrants, jointly and severally but
subject to Article X, to Buyer, as follows:
3C.1 Organization and Good Standing. Each of the Company, Coal,
Comprehensive, Mid State and Premier is a corporation or stock insurance
company, as the case may be, duly organized, validly existing and in good
standing under the laws of the jurisdiction set forth in Schedule 3C.1 of the
Disclosure Schedule of Sellers. Each of the Companies has all requisite power
and authority to conduct its business as currently conducted and to own or lease
and to operate its properties. Each of the Companies is duly qualified or
admitted to do business and is in good standing as a foreign corporation or
stock insurance company, as the case may be, in all jurisdictions in which the
ownership, use or leasing of its assets or properties or the conduct or nature
of its business makes such qualification or admission necessary, except where
the failure to be so qualified or admitted would not have a Material Adverse
Effect with respect to the Companies.
3C.2 Licenses and Permits. Each of the Companies has all Permits required
in each of the jurisdictions listed on Schedule 3C.2 of the Disclosure Schedule
of Sellers to engage in the business of writing insurance policies of the type
specified on such Schedule 3C.2 except for such Permits, the absence, expiration
or invalidity of which, individually or in the
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aggregate, does not have a Material Adverse Effect with respect to the
Companies. Each of the Companies is duly licensed and qualified to transact
those lines of insurance business in those states and jurisdictions listed on
such Schedule 3C.2. Except as set forth on such Schedule 3C.2, all such Permits
are owned by the Companies, are in full force and effect and none of the
Companies or Sellers has received any notice of any event, inquiry,
investigation or proceeding that could result in a penalty or fine in excess of
$25,000, singly or in the aggregate, or in the suspension, revocation or
limitation on any such Permit, and, to the best knowledge of each Seller, there
is no basis for any such fine, penalty, suspension, revocation or limitation.
Each of the Companies possesses the minimum statutory capital and surplus as
required by each such jurisdiction for the type of insurance written by the
Companies in each jurisdiction set forth on such Schedule 3C.2.
3C.3 Capitalization. (a) The Company. The authorized capital stock of the
Company consists of 1,070,961 shares of capital stock, no par value, 500,000 of
which are designated Class A Common Stock and 571,961 of which are designated
Class B Common Stock. All of the outstanding shares of capital stock of each of
the Company Subsidiaries is owned beneficially and of record by the Company,
free and clear of any Liens except for the Lien on the capital stock of Premier
created pursuant to the terms of the Premier Stock Purchase Agreement.
(b) Coal. The authorized capital stock of Coal consists of 1,000 shares of
common stock, $100 par value per share, 997 of which are issued and outstanding
and three of which were directors qualifying shares issued to three directors of
Coal, as nominees of Coal. Certificates representing such three shares of common
stock have not been located and none of the holders thereof have any enforceable
rights, at law, in equity or otherwise, as a shareholder of Coal. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and non-assessable.
(c) Comprehensive. The authorized capital stock of Comprehensive consists
of 100 shares of common stock, no par value, 100 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) Mid State. The authorized capital stock of Mid State consists of 100
shares of common stock, $1.00 par value per share, 100 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) Premier. The authorized capital stock of Premier consists of 1,000
shares of common stock, no par value, 1,000 of
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which are issued and outstanding. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable.
(f) No Rights. There are no outstanding securities, rights (pre-emptive or
other), subscriptions, calls, warrants, options or other agreements (except for
this Agreement) that give any person or entity the right to (i) purchase or
otherwise receive or be issued any shares of capital stock of any of the
Companies (or any interest therein) or any security convertible into or
exchangeable for any shares of capital stock of any of the Companies (or any
interest therein), (ii) receive any dividend, voting or ownership rights similar
to those accruing to a holder of shares of capital stock of any of the
Companies, or (iii) participate in the equity, income or election of directors
or officers of the Companies. Except as set forth in Schedule 3C.3 of the
Disclosure Schedule of Sellers, there are no proxies, voting trusts or other
agreements or understandings to which either Seller is a party with respect to
the voting of any of the Purchased Stock.
3C.4 No Violation or Breach. The execution, delivery and performance by
Sellers of this Agreement does not, and the consummation of the transactions
required by each contemplated hereby will not (with or without the giving of
notice or the lapse of time or both):
(a) violate or require any consent or approval under any provision of the
certificate or articles of incorporation or by-laws of any of the Companies; or
(b) except as set forth in Section 3C.6, violate or result in a default of,
or require any consent or approval under, or result in the termination of or
loss of any right (including any right of acceleration, termination or
cancellation) in or with respect to, any Contract, Permit, Equipment Lease or
Software License, except for such violations or breaches which would not have a
Material Adverse Effect with respect to the Companies; or
(c) except as set forth on Schedule 3C.4 of the Disclosure Schedule of
Sellers, violate or result in a default of, or require any consent or approval
under any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority, to which any of the Companies is a party or
is otherwise subject; or
(d) result in any Lien upon any properties, assets, business or agreements
of the Companies howsoever arising, except for such Liens which would not have a
Material Adverse Effect with respect to the Companies.
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3C.5 Subsidiaries. The Company has no Subsidiaries other than the Company
Subsidiaries and no Company Subsidiary has any Subsidiaries, except for
non-operating Subsidiaries which have no assets and no liabilities and conduct
no business.
3C.6 Consents. Except as set forth in Schedule 3C.6 of the Disclosure
Schedule of Sellers, no consent, license, approval, order or authorization of,
or registration, filing or declaration with, any governmental authority, is
required to be obtained or made, and no consent of any third party is required
to be obtained, by any of the Companies in connection with the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby.
3C.7 Statutory Statements. Sellers have delivered to Buyer (a) the Company
Statutory Statements and (b) any annual statutory statements of the Companies
that were filed for the year ended December 31, 1995 in any jurisdiction (other
than Pennsylvania) and which differ from the Company Annual Statement for the
year ended December 31, 1995. Each such Company Statutory Statement (i) complied
in all material respects with all applicable laws when so filed, (ii) was
prepared in accordance with SAP and (iii) presents fairly in all material
respects the financial position of the Company, except with respect to Reserves,
as of the respective dates thereof and the related summary of operations and
changes in capital and surplus and in cash flows of the Company for and during
the respective periods covered thereby. No material deficiency has been asserted
by any insurance regulatory authority with respect to any such Statutory
Statement.
3C.8 Insurance Regulatory Filings. (a) To the best knowledge of Sellers,
since January 1, 1991 through and including June 30, 1994 (the "1991-1994
Period"), each of the Companies has filed or otherwise provided all reports,
data, other information and applications required to be filed or otherwise
provided to the Department and all other federal, state or local governmental
authorities with jurisdiction over any of the Companies except where the failure
to file would not have a Material Adverse Effect with respect to the Companies.
Sellers have made available to Buyer copies of all reports of examinations
(whether financial, market conduct or other) issued by and all drafts of as of
yet unissued reports of examinations delivered by the Department and all other
state insurance regulatory authorities in respect of any of the Companies
received, to the best knowledge of Sellers, during the 1991-1994 Period. Except
as set forth on Schedule 3C.8 of the Disclosure Schedule of Sellers, no
deficiencies material to the financial condition, operations or prospects of any
of the Companies have been asserted by the Department or any other state
insurance regulatory authority with respect to any reports or filings made on
behalf of any of the Companies, to the best knowledge of Sellers, in the
1991-1994
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Period. Sellers have made available to Buyer copies of all written responses
submitted on behalf of any of the Companies, to the best knowledge of Sellers,
in the 1991-1994 Period, in respect of any report of examination (whether
financial, market conduct or other) of any of the Companies by the Department or
any other state regulatory authority.
(b) Since July 1, 1994 (the "Ownership Period"), each of the Companies has
filed or otherwise provided all reports, data, other information and
applications required to be filed or otherwise provided to the Department and
all other federal, state or local governmental authorities with jurisdiction
over any of the Companies except where the failure to file would not have a
Material Adverse Effect with respect to the Companies. Sellers have made
available to Buyer copies of all reports of examinations (whether financial,
market conduct or other) issued by and all drafts of as of yet unissued reports
of examinations delivered by the Department and all other state insurance
regulatory authorities in respect of any of the Companies received in the
Ownership Period. Except as set forth on Schedule 3C.8 of the Disclosure
Schedule of Sellers, no deficiencies material to the financial condition,
operations or prospects of any of the Companies have been asserted by the
Department or any other state insurance regulatory authority with respect to any
reports or filings made on behalf of any of the Companies in the Ownership
Period. Sellers have made available to Buyer copies of all written responses
submitted on behalf of any of the Companies in the Ownership Period, in respect
of any report of examination (whether financial, market conduct or other) of any
of the Companies by the Department or any other state regulatory authority.
(c) Sellers have made available to Buyer all files of the Companies
relating to correspondence with the Department or any other insurance regulatory
authority.
3C.9 Insurance Issued. Except as required by Law or except as disclosed in
Schedule 3C.9 of the Disclosure Schedule of Sellers:
(a) All outstanding insurance Contracts issued, reinsured or underwritten
by any of the Companies (i) in the period prior to July 1, 1994 (the
"Pre-Ownership Period") are, to the best knowledge of Sellers, and (ii) in the
Ownership Period are, to the extent required under applicable laws, on forms and
at rates approved by the insurance regulatory authority of the jurisdiction
where issued or have been filed with and not objected to by such authority
within the period provided for objection.
(b) All insurance contract benefits payable by any of the Companies or, to
the best knowledge of Sellers, by any other
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person or entity that is a party to or bound by any reinsurance or other similar
Contract with any of the Companies (i) with respect to any such Contracts issued
in the Pre-Ownership Period have, to the best knowledge of Sellers, and (ii)
with respect to any such Contracts issued in the Ownership Period, have in all
material respects been paid in accordance with the terms of the insurance
Contracts under which they arose, except for such benefits for which the Company
believes there is a reasonable basis to contest payment.
(c) No outstanding insurance Contract issued, reinsured or underwritten by
any of the Companies entitles the holder thereof or any other person or entity
to receive stock dividends, distributions or other benefits based on the
revenues or earnings of any of the Companies or any other person or entity,
except for policyholder dividends paid in the ordinary course of business.
(d) To the best knowledge of Sellers, all amounts to which any of the
Companies is entitled under reinsurance or other similar Contracts (including
without limitation amounts based on paid and unpaid losses) are collectible in
the ordinary course of business.
(e) To the best knowledge of Sellers, each insurance agent, at the time
such agent wrote, sold, or produced business for any of the Companies, was duly
licensed as an insurance agent (for the type of business written, sold, or
produced by such insurance agent) in the particular jurisdiction in which such
agent wrote, sold, or produced such business for any of the Companies.
3C.10 Transactions with Interested Persons. Except as disclosed in Schedule
3C.10 of the Disclosure Schedule of Sellers, no officer or director of any of
the Companies owns, directly or indirectly, on an individual or joint basis, any
material interest in, or serves as an officer or director of, any customer,
competitor or supplier of any of the Companies or any person or entity which has
a contract or arrangement with any of the Companies. Schedule 3C.10 of the
Disclosure Schedule of Sellers lists or describes all contracts between any of
the Companies and all services provided thereunder.
3C.11 Reinsurance Policies. Set forth in Schedule 3C.11 of the Disclosure
Schedule of Sellers is a complete and accurate list of all reinsurance contracts
and treaties under which any of the Companies has ceded or assumed reinsurance
obligations and the cost and terms and the expiration date of each such contract
or treaty. Such Schedule 3C.11 specifies whether any such contract or treaty has
been commuted or has lapsed. Each contract and treaty set forth on such Schedule
3C.11 (or required to be set forth on such Schedule 3C.11) will not be
terminated or
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otherwise adversely affected as a result of the transactions contemplated
hereby. Except as set forth on such Schedule 3C.11, each such contract or treaty
is in full force and effect, and any such contract or treaty under which any of
the Companies cedes reinsurance obligations is qualified under all Laws
applicable to reinsurance policies and treaties to receive the statutory credit
assigned to such contract or treaty in the Company Statutory Statements at the
time such Company Statutory Statements were prepared. During the Ownership
Period or, to the best knowledge of Sellers, during the Pre-Ownership Period,
none of the Companies has violated any of the terms and conditions of any such
policies and treaties and, to the best knowledge of Sellers, all of the
covenants to be performed by any other party under any such policy and treaties
were negotiated with independent third parties in good faith at arm's length,
other than any such policies or treaties among the Companies and their
Affiliates as listed on such Schedule 3C.11.
3C.12 Litigation. Except as set forth on Schedule 3C.12 of the Disclosure
Schedule of Sellers, and except for claims made under or in connection with
insurance policies issued by the Companies:
(a) there is no action, proceeding, investigation or claim pending or,
to the best knowledge of Sellers, threatened against or affecting the
Companies or their respective assets before any court or governmental or
regulatory authority or body that, if adversely determined, would have a
Material Adverse Effect with respect to the Companies or which questions
the validity of this Agreement or any action taken or to be taken pursuant
hereto or in connection with the purchase and sale of the Purchased Stock;
and
(b) to the best knowledge of Sellers, there is no state of facts and
there has occurred no event or group of related events, that would form the
basis of any claim against any of the Companies for liability in connection
with the performance of the Contracts or the conduct of their respective
businesses that, if adversely determined, would have a Material Adverse
Effect with respect to the Companies or which questions the validity of
this Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
Except as set forth on Schedule 3C.12 of the Disclosure Schedule of Sellers,
with respect to claims against any of the Companies made under or in connection
with insurance policies issued by the Companies, there are no claims as to which
liability in excess of applicable coverage limits has been asserted against any
of the
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Companies including, without limitation, claims for bad faith or for punitive
damages.
3C.13 No Brokers. Other than counsel, none of the Companies has employed
any finder, broker, agent or other intermediary in connection with the
negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby.
3C.14 Absence of Certain Changes. Except as set forth on Schedule 3C.14 of
the Disclosure Schedule of Sellers, since September 30, 1996, none of the
Companies has:
(a) issued, sold or delivered or agreed to issue, sell or deliver any
shares of its capital stock or any options, warrants or rights to acquire
any such capital stock, or securities convertible into or exchangeable for
such capital stock except for the transactions contemplated by this
Agreement;
(b) incurred any obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of
others), other than obligations and liabilities incurred in the ordinary
course of business and obligations and liabilities under the Contracts;
(c) mortgaged, pledged or subjected to any Lien any of its assets,
tangible or intangible;
(d) acquired or disposed of any assets or properties, or entered into
any agreement or other arrangement for any such acquisition or disposition,
except in the ordinary course of business;
(e) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders, other than the payment of a
management fee in an amount not to exceed $700,000, in connection with this
transaction, or purchased or redeemed any shares of its capital stock or
any option, warrant or right to purchase any such capital stock, or
reclassified its capital stock;
(f) entered into any employment agreement with any officer or salaried
employee that is not terminable at any time by the employer, without cause
and without penalty;
(g) forgiven or cancelled any debts or claims or waived any rights of
material value;
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(h) conducted its business or entered into any transaction other than
in the ordinary course of business, except the Contracts;
(i) granted any rights or licenses under any of its trade names or
entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting practice or policy
other than as required by SAP or applicable Law;
(l) been sued or, to the best knowledge of Sellers, threatened with
any suit by any employee or former employee;
(m) to the best knowledge of Sellers, suffered or experienced any
change in relations with or material loss of any employees or customers; or
(n) agreed to take any action described in clauses (a) through (m).
3C.15 Taxes. (a) The Companies are members of the affiliated group, within
the meaning of Section 1504(a) of the Code, of which the Company is the common
parent, such affiliated group files a consolidated federal income tax return,
and except as disclosed on Schedule 3C.15 of the Disclosure Schedule of Sellers,
none of the Companies has ever filed a consolidated federal income tax return
with (or been included in a consolidated return of) a different affiliated
group. Each of the Companies has filed or caused to be filed or (in the case of
returns or reports not yet due) will file all tax returns and reports required
to have been filed by or for it on or before the due date thereof (including
extensions) that is on or before the Closing Date, and all material information
set forth in such returns or reports is or (in the case of returns or reports
not yet filed) will be accurate and complete. Each of the Companies has paid or
made adequate provision for or (with respect to returns or reports not yet
filed) will make adequate provision for all taxes, additions to tax, penalties
and interest for periods covered by those returns or reports. Each of the
Companies is in compliance with, and its records contain all information and
documents (including, without limitation, properly completed IRS Forms W-9)
necessary to comply with, all applicable tax information reporting and tax
withholding requirements under federal, state, local, and foreign laws, rules,
and regulations, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Code.
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(b) Each of the Companies has collected or withheld all amounts required to
be collected or withheld by it for any taxes, and all such amounts have been
paid to the appropriate governmental agencies or set aside in appropriate
accounts for future payment when due. The balance sheets contained in the
Statutory Statements fully and properly reflect, as of their dates, the
liabilities of each of the Companies for all accrued taxes, additions to tax,
penalties, and interest. Except as disclosed on Schedule 3C.15 of the Disclosure
Schedule of Sellers, there are no due but unpaid taxes, additions to tax,
penalties, or interest payable by any of the Companies or any other person that
(i) are or could become a Lien on any asset, or otherwise adversely affect the
business, properties, or financial condition, of any of the Companies or (ii)
could cause Buyer to incur any liability.
(c) Schedule 3C.15 of the Disclosure Schedule of Seller describes all tax
elections, consents, and agreements made by or affecting any of the Companies,
lists all types of taxes paid and returns filed by or on behalf of any of the
Companies, and expressly indicates each tax with respect to which any of the
Companies is or has been included in a consolidated, unitary, or combined
return. Except as disclosed on such Schedule 0X.00, xxxx of the Companies has
granted (or is subject to) any waiver of the period of limitations for the
assessment of tax for any currently open taxable period, no unpaid tax
deficiency has been asserted against or with respect to any of the Companies by
any taxing authority and there is no dispute or claim concerning any tax
liability of any of the Companies claimed by any tax authority. To the best of
Sellers' knowledge, no claim has ever been made by a tax authority in a
jurisdiction where any of the Companies does not file tax returns that any of
the Companies is or may be subject to taxation in such jurisdiction. There are
no security interests on any assets of the Companies that arose in connection
with any failure (or alleged failure) to pay taxes. None of the Companies has
entered into a closing agreement pursuant to Section 7121 of the Code.
(d) None of the Companies has made or entered into, or holds any asset
subject to, a consent filed pursuant to Section 341(f) of the Code and the
regulations thereunder. None of the assets of any of the Companies is or will be
required to be treated as being owned by any person (other than such Company)
pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of
1954, as amended and in effect immediately before the enactment of the Code, and
the rules and regulations thereunder. Except as disclosed on such Schedule
0X.00, xxxx of the Companies is required to include in income any amount for an
adjustment pursuant to Section 481 of the Code.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or
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collectively, could give rise to the payment of any amount that would not be
deductible by the Company by reason of Section 280G of the Code.
3C.16 Contracts. (a) Schedule 3C.16 of the Disclosure Schedule of Sellers
contains a complete and correct list of all agreements, contracts and
commitments, written or oral, to which any of the Companies is a party or by
which any of the Companies is bound including, without limitation, Equipment
Leases and Software Licenses (collectively, the "Contracts"), excluding: (i) any
of the foregoing listed on Schedule 3C.11 of the Disclosure Schedule of Sellers
[Reinsurance]; (ii) insurance policies written by the Companies in the ordinary
course of business; and (iii) agreements, contracts and commitments in the
ordinary course with obligations to pay or perform services, which payments or
performance under all such agreements, contracts and commitments aggregate less
than $10,000, or that are terminable without cost or liability on notice of 30
days or less.
(b) Sellers have delivered or made available to Buyer complete and correct
copies of all Contracts (including, without limitation, all Equipment Leases and
Software Licenses) together with all amendments thereto and waivers and consents
with respect thereto and accurate descriptions of all oral agreements. Each of
the Contracts is in full force and effect. The Companies and the other parties
to such agreements, contracts and commitments, have in all material respects
performed all obligations required to be performed by them to date and are not
in default in any material respect. None of the Companies has outstanding any
power of attorney, except routine powers of attorney relating to representation
before governmental agencies or given in connection with being licensed to
conduct business in another jurisdiction and except for routine authorizations
given to managing general agents.
3C.17 Compliance with Other Instruments and Laws. Except as set forth on
Schedule 3C.17 of the Disclosure Schedule of the Sellers, none of the Companies
is in violation of any term of its charter or by-laws or any Contract or of any
judgment, decree or order and none of the Companies is in violation of any Law,
permit, concession, grant, franchise, license or other govern- mental
authorization or approval applicable to it or any of its properties, except for
such violation that would not have a Material Adverse Effect with respect to the
Companies.
3C.18 Employees. Schedule 3C.18 of the Disclosure Schedule of Sellers lists
all persons (the "Employees") employed by any of the Companies as of September
30, 1996.
3C.19 Employee Benefit Matters. (a) None of the Companies, any ERISA
Affiliate or any employee pension benefit plan (as
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defined in Section 3(2) of ERISA) maintained or previously maintained by any of
them (a "Pension Plan"), has incurred any material liability with respect to any
Pension Plan, other than premiums to the Pension Benefit Guaranty Corporation
("PBGC"), payment of employer contributions in an aggregate amount of not
greater than $100,000 and expenses of administration in an aggregate amount of
not greater than $15,000. There is not currently pending with the PBGC with
respect to any Pension Plan any filing with respect to any reportable event
under Section 4043 of ERISA nor has any reportable event occurred as to which a
filing is required and has not been made.
(b) Full payment has been made (or proper accruals have been established)
of all contributions which are required for periods prior to the Closing Date
under the terms of each Employee Plan, ERISA and collective bargaining
agreement, no accumulated funding deficiency (as defined in Section 302 of ERISA
or Section 412 of the Code), whether or not waived, exists with respect to any
Pension Plan (including any Pension Plan previously maintained by the Companies
or any ERISA Affiliate), and there was no "unfunded current liability" (as
defined in Section 412 of the Code) as of December 31, 1995 with respect to any
Pension Plan, except as set forth (i) in footnote 5 of the Company Annual
Statement for the year ended December 31, 1995 or (ii) in Schedule 3C.19(b) of
the Disclosure Schedule of Sellers, and to the best knowledge of each Seller,
except as set forth in such Schedule 3C.19(b), as of the date hereof there are
no facts, circumstances or developments with respect to any Pension Plan that
would give rise to an "unfunded current liability" with respect to any Pension
Plan.
(c) Neither the Company nor any ERISA Affiliate has contributed to, or been
required to contribute to, any multiemployer plan (as defined in Section 3(37)
of ERISA.
(d) All Employee Plans that are "employee benefit plans," as defined in
Section 3(3) of ERISA, that are maintained by the Companies or previously
maintained by the Companies comply and have been administered in compliance in
all material respects with ERISA and all other applicable legal requirements,
including the terms of such plans, collective bargaining agreements and
securities laws. Except as set forth in Schedule 3C.19(b) of the Disclosure
Schedule of Sellers, none of the Companies has any material liability under any
such plan.
(e) No prohibited transaction has occurred with respect to any Employee
Plan that is an "employee benefit plan" (as defined in Section 3(3) of ERISA)
maintained by the Companies or previously maintained by the Companies that would
result, directly or indirectly, in material liability under ERISA or in the
imposition of a material excise tax under Section 4975 of the Code.
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(f) The funding under each Employee Plan that is an "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA) does not exceed the
limitation under Section 419A(b) or 419(c) of the Code. None of the Companies is
subject to taxation on the income of any such plan or any such plan previously
maintained by the Companies or an ERISA Affiliate.
(g) Schedule 3C.19(a) of the Disclosure Schedule of Sellers contains a true
and complete list of all Pension Plans and Employee Plans.
3C.20 Assets and Properties. (a) Schedule 3C.20(a) of the Disclosure
Schedule of Sellers contains an accurate and complete list of all domestic and
foreign letters patent, patents, patent applications, patent licenses, software
licenses and know-how licenses, trade names, trademarks, copyrights, unpatented
inventions, service marks, trademark registrations and applications, service
xxxx registrations and applications, and copyright registrations and
applications and software owned by the Companies or its Affiliates and used by
any of the Companies in connection with the operation of their respective
businesses (collectively the "Intellectual Property"). Unless otherwise
indicated in such Schedule 3C.20(a), one or more of the Companies owns the
entire right, title and interest in and to the Intellectual Property (including,
without limitation, the exclusive right to use and license the same), and no
person is infringing on the Companies' ownership or use of the Intellectual
Property.
(b) Schedule 3C.20(b) of the Disclosure Schedule of Sellers contains a list
of all debentures, notes, stocks, limited partnership interests, other
securities, mortgages and other investment assets owned by each of the Companies
as of September 30, 1996. Each of the Companies had good and marketable title to
all debentures, notes, stocks, limited partnership interests, other securities,
mortgages and other investment assets (excluding real property) owned by it as
of such date, free and clear of all Liens.
(c) Schedule 3C.20(c) of the Disclosure Schedule of Sellers contains a true
and complete list and description of all real property in which each of the
Companies has an ownership interest. Each of the Companies owns good and
insurable fee simple title to all such real property, free and clear of all
Liens, except for Permitted Liens.
(d) Schedule 3C.20(d) of the Disclosure Schedule of Sellers contains a true
and complete list and description of all real property leased by each of the
Companies. Each of the Companies has a valid leasehold interest in all such
leased real property.
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3C.21 Reserves. The Reserves in respect of each of the Companies' insurance
business as established or reflected in the Company Quarterly Statement for the
quarter ended September 30, 1996 (a) were determined in accordance with SAP and
the actuarial assumptions of Xxxxx Associates, Inc. described in the acturial
analysis of such actuary dated February 19, 1996, (b) were in accordance with
the requirements specified in the related insurance or reinsurance Contracts in
all material respects and (c) met the requirements of the insurance laws of each
applicable jurisdiction in all material respects. Each of the Companies owns
assets that qualify as admitted assets under applicable insurance laws in an
amount at least equal to all such reserves and similar amounts of the respective
Company.
3C.22 Operating Insurance. Schedule 3C.22 of the Disclosure Schedule of
Sellers contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability and other
similar insurance contracts that insure the business, operations, or affairs of
each of the Companies or affect or relate to the ownership, use or operations of
any of the assets or properties of each of the Companies.
3C.23 Bank Accounts. Schedule 3C.23 of the Disclosure Schedule of Sellers
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
any of the Companies has an account or safe deposit box or maintains a banking,
custodial, trading, trust, or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship, (c) a
true and complete list of all signatories for each such account and box and (d)
a true and complete list of all compensating balances required with respect to
each such account.
3C.24 Charter Documents and By-laws. Sellers have heretofore made available
to Buyer true and complete copies of the certificates or articles of
incorporation and by-laws of each of the Companies, as in effect on the date
hereof.
3C.25 Minute Books. To the best knowledge of Sellers, the minute books of
each of the Companies accurately reflect in all material respects all formal
actions taken at all meetings held during the Pre-Ownership Period and all
consents in lieu of meetings of the stockholders of the respective Company since
the date of formation of such Company through and including June 30, 1994, and
all formal actions taken at all meetings held during the Pre-Ownership Period
and all consents in lieu of meetings of the boards of directors of each of the
Companies and all committees thereof since the date of formation of such Company
through and including June 30, 1994. The minute books of each of the Companies
accurately reflect in all material respects all
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formal actions taken at all meetings held during the Ownership Period and all
consents in lieu of meetings of the stockholders of the respective Company since
July 1, 1994, and all formal actions taken at all meetings held during the
Ownership Period and all consents in lieu of meetings of the boards of directors
of each of the Companies and all committees thereof since July 1, 1994. All of
such minute books have previously been made available for inspection by Buyer.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to (a) each Seller, with respect to
(i) the first sentence of Section 4.1 and the first sentence of Section 4.8 and
(ii) Sections 4.3, 4.4, 4.5, 4.6, 4.9 and 4.16, and (b) PIC only, with respect
to (i) the second and third sentences of Section 4.1, (ii) the second sentence
of Section 4.8 and (iii) Sections 4.2, 4.7, 4.10, 4.11, 4.12, 4.13, 4.14 and
4.15:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of North
Carolina. Buyer has all requisite corporate power and authority to conduct its
business as currently conducted and to own or lease and to operate its
properties. Buyer is duly qualified or admitted to do business and is in good
standing as a foreign corporation in all jurisdictions in which the ownership,
use or leasing of its assets or properties or the conduct or nature of its
business makes such qualification or admission necessary, except where the
failure to be so qualified or admitted would not reasonably be likely to have a
Material Adverse Effect with respect to Buyer.
4.2 Capitalization (a) The authorized capital stock of Buyer consists of
11,700,000 shares of capital stock, (i) 10,000,000 of which are designated Class
A Common Stock, no par value (the "Front Royal Class A Stock"), (ii) 700,000 of
which are designated Class B Common Stock, no par value (the "Front Royal Class
B Stock"), and (iii) 1,000,000 of which are designated preferred stock, par
value $100 per share. There are 5,442,030 shares of Front Royal Class A Stock
issued and outstanding and 272,895 shares of Front Royal Class B Stock issued
and outstanding. All such outstanding shares have been duly authorized and
validly issued and are fully paid and non-assessable. There are no shares of
preferred stock issued and outstanding. Upon issuance on the Closing Date of the
Front Royal Preferred Stock to PIC, there will be 155,000 shares of Front Royal
Preferred Stock issued and outstanding and all such outstanding shares will be
duly authorized and validly issued, fully paid and non-assessable. All of the
outstanding capital
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stock of each of the Front Royal Subsidiaries is owned beneficially and of
record by Buyer or a Front Royal Subsidiary as set forth in Schedule 4.2(a) of
the Disclosure Schedule of Buyer, free and clear of all Liens, except for such
Liens set forth in the Disclosure Schedule of Buyer.
(b) The authorized capital stock of Colony Management consists of 5,000
shares of Common Stock, no par value, 100 of which are issued and outstanding.
All such outstanding shares have been duly authorized and validly issued and are
fully paid and non-assessable.
(c) The authorized capital stock of Colony Insurance consists of 200,000
shares of Common Stock, par value $10 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(d) The authorized capital stock of FREIM consists of 200,000 shares of
Common Stock, par value $.01 per share, 60,000 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(e) The authorized capital stock of FRESI consists of 100,000 shares of
Common Stock, par value $1.00 per share, 11,875 of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(f) The authorized capital stock of Xxxxxxxx Insurance consists of 1,500
shares of Common Stock, par value $1,000 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(g) The authorized capital stock of Front Royal Insurance consists of 1,000
shares of Common Stock, par value $1,500 per share, all of which are issued and
outstanding. All such outstanding shares have been duly authorized and validly
issued and are fully paid and non-assessable.
(h) The authorized capital stock of FRETS consists of 5,000 shares of
Common Stock, no par value, 100 of which are issued and outstanding. All such
outstanding shares have been duly authorized and validly issued and are fully
paid and non-assessable.
(i) The authorized capital stock of Triangle Engineering consists of
100,000 shares of Common Stock, par value $1.00 per share, 10 of which are
issued and outstanding. All such outstanding shares have been duly authorized
and validly
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issued and are fully paid and non-assessable. Triangle Engineering has no
assets, other than certain immaterial assets necessary in connection with its
continued existence, and conducts no business.
(j) Except as set forth in Schedule 4.2(j) of the Disclosure Schedule of
Buyer and for this Agreement, there are no outstanding securities, rights
(pre-emptive or other), subscriptions, calls, warrants, option or other
agreements that give any person or entity the right to (i) purchase or otherwise
receive or be issued any shares of capital stock of Buyer or the Front Royal
Subsidiaries (or any interest therein) or any security convertible into or
exchangeable for any shares of capital stock of Buyer or the Front Royal
Subsidiaries (or any interest therein), (ii) receive any dividend, voting or
ownership rights similar to those accruing to a holder of shares of capital
stock of Buyer or the Front Royal Subsidiaries or (iii) participate in the
equity, income or election of directors or officers of Buyer or the Front Royal
Subsidiaries.
(k) As of the Closing Date, such number as set forth in the Charter
Amendment of shares of Front Royal Class A Stock will be reserved for issuance
upon conversion of the shares of Front Royal Preferred Stock to be issued on the
Closing Date.
4.3 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it or contemplated by
this Agreement. The execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by the board of directors of Buyer. No other action
or proceeding on the part of the Buyer is necessary to authorize the Agreement
or the consummation of the transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by Buyer, and constitutes a legal,
valid and binding obligation of Buyer, enforceable in accordance with its terms.
4.4 No Violation or Breach. The execution, delivery and performance of this
Agreement by Buyer does not, and the consummation of the transactions required
by Buyer contemplated hereby will not (with or without the giving of notice or
the lapse of time or both):
(a) violate or require any consent or approval under, any provision of the
Certificate of Incorporation or by-laws of Buyer;
(b) except as set forth in Section 4.5 hereof, violate or result in a
default of, or require any consent or approval under any agreement, policy,
instrument, contract, commitment,
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license, franchise, permit or trust to which Buyer is a party or is otherwise
subject, except for such violations or breaches which would not have a Material
Adverse Effect with respect to Buyer; or
(c) violate or result in a default of, or require any consent or approval
under, any judgment, settlement, consent, injunction, decree, order or ruling of
any court or governmental authority to which Buyer is a party or otherwise
subject.
4.5 Consents. Except as set forth on Schedule 4.5 of the Disclosure
Schedule of Buyer, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made, and no consent of any third party is required to be
obtained, by Buyer, in connection with its execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
4.6 Purchase for Investment. Buyer is purchasing the Purchased Stock for
its own account for investment and not with a view to any distribution thereof
within the meaning of the Securities Act. Buyer acknowledges that the offer and
sale of the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act, and the Purchased Stock may not be resold or otherwise
transferred except pursuant to an effective registration statement or an
exemption from registration thereunder, and pursuant to registration or
qualification (or exemption therefrom) under applicable state securities laws.
4.7 Licenses and Permits. Each of Buyer and the Front Royal Subsidiaries
has all Permits required in each of the jurisdictions listed on Schedule 4.7 of
the Disclosure Schedule of Buyer to engage in the business of writing insurance
policies of the type specified on such Schedule 4.7 except for such Permits, the
absence, expiration or invalidity of which, individually or in the aggregate, do
not have a Material Adverse Effect with respect to Buyer. Each of Buyer and the
Front Royal Subsidiaries is duly licensed and qualified to transact those lines
of insurance business in those states and jurisdictions listed on such Schedule
4.7. Except as set forth on such Schedule 4.7, all such Permits are owned by
Buyer and the Front Royal Subsidiaries, are in full force and effect and none of
Buyer or the Front Royal Subsidiaries has received any notice of any event,
inquiry, investigation or proceeding that could result in a penalty or fine in
excess of $25,000, singly or in the aggregate, or in the suspension, revocation
or limitation on any such Permit, and, to the best knowledge of Buyer, there is
no basis for any such fine, penalty, suspension, revocation or limitation. Each
of Buyer and the Front Royal Subsidiaries possesses the minimum statutory
capital and surplus as required by each such jurisdiction for the type of
insurance written by
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Buyer and the Front Royal Subsidiaries in each jurisdiction set forth on such
Schedule 4.7.
4.8 Litigation. Except as set forth on Schedule 4.8 of the Disclosure
Schedule of Buyer, and except for claims made under or in connection with
insurance policies issued by the Front Royal Subsidiaries:
(a) there is no action, proceeding, investigation or inquiry pending
or, to the best knowledge of Buyer, threatened against Buyer which
questions the validity of this Agreement or any action taken or to be taken
pursuant hereto or thereto or in connection with the purchase and sale of
the Purchased Stock; and
(b) to the best knowledge of Buyer, there is no state of facts and
there has occurred no event or group of related events, that would form the
basis of any claim against Buyer for liability on account of violation of
statute or regulation, or otherwise in connection with the conduct of its
business that, if adversely determined, would have a Material Adverse
Effect with respect to Buyer or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
Except as set forth on Schedule 4.8 of the Disclosure Schedule of Buyer, with
respect to claims made against any of the Front Royal Subsidiaries under or in
connection with insurance policies issued by the Front Royal Subsidiaries, there
are no claims as to which liability in excess of applicable coverage limits has
been asserted against any of the Front Royal Subsidiaries including, without
limitation, claims for bad faith or for punitive damages.
4.9 No Brokers. Other than counsel, Buyer has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
4.10 Charter Documents and By-laws. Buyer has heretofore made available to
Sellers true and complete copies of the certificates of incorporation and
by-laws of Buyer and of each the Front Royal Subsidiaries, as in effect on the
date hereof.
4.11 Minute Books. The minute books of Buyer and the Front Royal
Subsidiaries accurately reflect in all material respects all formal actions
taken at all meetings and all consents in lieu of meetings of the stockholders
of the respective company since the date of formation of such company, and all
formal actions taken at all meetings and all consents in lieu of meetings of the
board of directors of Buyer and the Front Royal Subsidiaries and all committees
thereof since the date of formation of such
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company. All of such minute books have previously been made available for
inspection by PIC.
4.12 Statutory Statements. Buyer has delivered to Sellers (a) the Front
Royal Statutory Statements and (b) any annual statutory statements of Front
Royal Insurance, Xxxxxxxx Insurance and Colony Insurance that were filed for the
year ended December 31, 1995 in any jurisdiction (other than Virginia and Ohio)
and which differ from the Front Royal Annual Statement for the year ended
December 31, 1995. Each such Front Royal Statutory Statement (i) complied in all
material respects with all applicable laws when so filed, (ii) was prepared in
accordance with SAP and (iii) presents fairly in all material respects the
financial position of Front Royal Insurance, Xxxxxxxx Insurance and Colony
Insurance as of the respective dates thereof and the related summary of
operations and changes in capital and surplus and in cash flows of Front Royal
Insurance, Xxxxxxxx Insurance and Colony Insurance for and during the respective
periods covered thereby. No material deficiency has been asserted by any
insurance regulatory authority with respect to any such Statutory Statement.
4.13 Insurance Regulatory Filings. Since January 1, 1991, each of Buyer and
the Front Royal Subsidiaries has filed or otherwise provided all reports, data,
other information and applications required to be filed or otherwise provided to
the Virginia Insurance Department or the Ohio Insurance Department and all other
federal, state or local governmental authorities with jurisdiction over any of
Buyer or the Front Royal Subsidiaries except where the failure to file would not
have a Material Adverse Effect with respect to Buyer. Buyer has made available
to PIC copies of all reports of examinations (whether financial, market conduct
or other) issued by and all drafts of as of yet unissued reports of examinations
delivered by the Virginia Insurance Department or the Ohio Insurance Department
and all other state insurance regulatory authorities in respect of any of Buyer
and the Front Royal Subsidiaries received since January 1, 1991. Except as set
forth on Schedule 4.13 of the Disclosure Schedule of Buyer, no deficiencies
material to the financial condition, operations or prospects of any of Buyer or
the Front Royal Subsidiaries have been asserted by the Virginia Insurance
Department or the Ohio Insurance Department or any other state insurance
regulatory authority with respect to any reports or filings made on behalf of
any of Buyer or the Front Royal Subsidiaries since January 1, 1991. Buyer has
made available to PIC copies of all written responses submitted on behalf of any
of Buyer and the Front Royal Subsidiaries since January 1, 1991, in respect of
any report of examination (whether financial, market conduct or other) of any of
Buyer and the Front Royal Subsidiaries by the Virginia Insurance Department or
the Ohio Insurance Department or any other state regulatory authority. Buyer has
made available to PIC all files of Buyer
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and the Front Royal Subsidiaries relating to correspondence with the Virginia
Insurance Department or the Ohio Insurance Department or any other insurance
regulatory authority.
4.14 Reserves. The loss, loss adjustment and unearned premium reserves and
other similar amounts with respect to losses, claims, discounts and expenses in
respect of the insurance business of each of Front Royal Insurance, Xxxxxxxx
Insurance and Colony Insurance as established or reflected in the Front Royal
Quarterly Statement for the quarter ended as of September 30, 1996 (a) were
determined in accordance with SAP and the actuarial assumptions of
Tillingham-Towers Xxxxxx described in the acturial opinion of such actuary dated
Xxxxx 0, 0000, (x) were in accordance with the requirements specified in the
related insurance or reinsurance contracts in all material respects and (c) met
the requirements of the insurance laws of each applicable jurisdiction in all
material respects. Each of Front Royal Insurance, Xxxxxxxx Insurance and Colony
Insurance owns assets that qualify as admitted assets under applicable insurance
laws in an amount at least equal to all such reserves and similar amounts of the
respective company.
4.15 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Buyer as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise"
of Front Royal as of the Closing Date, as such terms are determined in
accordance with applicable federal and state laws governing determinations of
the insolvency of debtors.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course. Except as provided in this Agreement, or
with the express written consent of Buyer, between the date hereof and the
Closing Date:
(a) each of the Companies shall carry on its respective business in
the ordinary course and substantially in the same manner as heretofore
carried on;
(b) each of the Companies shall use its commercially reasonable best
efforts to preserve its respective properties, business, and relationships
with its respective clients and customers;
(c) each of the Companies shall not dispose of any material asset of
any of the Companies; provided that the disposition in the ordinary course
of business of any asset set forth on Schedule 3C.20(b) and concurrent
replacement
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thereof with a substantially similar asset shall not be deemed a breach of
this clause (c);
(d) each of the Companies shall not make, declare or pay any dividend
or distribution on any shares of any of the Companies' capital stock,
except from the Company Subsidiaries to the Company; and
(e) the Company shall maintain Reserves such that one-year development
of $23,293,000 will be shown on Schedule P-Part 2 Summary, Column (12),
Line (12) of the December 31, 1996 Annual Statement.
Sellers will advise Buyer promptly in writing of any material adverse change in
the properties, business, results of operations, condition (financial or
otherwise) or affairs of any of the Companies.
5.2 Indebtedness. Without the prior written consent of Buyer, none of the
Companies shall:
(a) create, incur or assume any indebtedness for borrowed money;
(b) mortgage, pledge or otherwise encumber or subject to any Lien any
of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. Sellers covenant and agree that none of the
Companies shall issue any shares of capital stock of any class or grant any
warrants, options or rights to subscribe for any shares of capital stock of any
class or securities convertible into or exchangeable for, or which otherwise
confer on the holder any right to acquire, any shares of capital stock of any
class.
5.4 Compensation. Schedule 5.4 of the Disclosure Schedule of Sellers sets
forth a complete list of the annual salaries and wages and commission schedules
of all Employees as of September 30, 1996. There have been no changes in
Employee Plans since April 30, 1993, except for changes required by Law. Except
as disclosed to Buyer by Sellers in writing prior to the date hereof, Sellers
covenant and agree that no Company shall grant any increases in the salaries and
wages or increases in commission schedules of any Employee, institute any new
employee benefits with respect to such Employees or amend any Employee Plans to
increase, benefits except for any such increases that
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are for cost of living or merit in accordance with past practice, without the
written consent of Buyer.
5.5 Compliance with Law. Sellers shall cause each of the Companies to use
its best efforts to comply in all material respects with all applicable Law and
with all orders of any court or of any federal, state, municipal or other
governmental department.
5.6 Access to Information. At Buyer's expense, Buyer and its authorized
agents, officers and representatives, for the purpose of confirming the
representations and warranties contained in Article III, shall have reasonable
access to the properties, books, records, contracts, information and documents
of the Companies; provided, however, that such examinations and investigations,
(a) shall occur with a minimum of 24 hours advance written notice, (b) shall be
conducted during normal business hours and (c) shall not unreasonably interfere
with the operations and activities of the Companies. Sellers and the Companies
shall cooperate in all reasonable respects with Buyer's examinations and
investigations. Buyer shall maintain all information regarding the Companies in
complete confidence and shall not disclose such information to any person except
as required by law, provided, however, Buyer shall not be required to keep
confidential information that (i) is or becomes generally available to the
public other than as a result of disclosure by Buyer, (ii) is or becomes
available to Buyer on a nonconfidential basis from a source other than Sellers
or the Companies or (iii) Buyer or any of their Affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena. At Buyer's
expense, Buyer shall be entitled to designate an agent of Buyer reasonably
satisfactory to Sellers to act as an observer of the operations of the Companies
and such agent shall have access to all properties, books, records, contracts,
information, documents and personnel of the Companies subject to the limitations
set forth in clause (a), (b) and (c) above. Sellers acknowledge and agree that
nothing in this Section 5.6 shall be deemed to release Sellers from any of their
liabilities or obligations under this Agreement.
5.7 Cooperative; Best Efforts. (a) Subject to the terms and conditions
provided herein, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper and advisable under applicable Law
(including, without limitation, the Pennsylvania Insurance Law), to consummate
and make effective the transactions contemplated by this Agreement.
(b) Each Seller and Buyer agrees to make their respective filing promptly
pursuant to the HSR Act and to use their reasonable best efforts and to
cooperate with each other to effect compliance with the HSR Act. Each of the
parties hereto
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agrees to make all required regulatory filings promptly after the date hereof
and to diligently pursue compliance with Pennsylvania Insurance Law and Virginia
Insurance Law.
(c) In furtherance and not in limitation of the foregoing, each of Sellers,
on the one hand, and Buyer, on the other hand, agree to inform the other party
prior to any and all scheduled meetings and communications, whether oral
(including telephonic or otherwise) or written, between such party and the
Department with respect to this Agreement or any of the transactions
contemplated hereby, and promptly thereafter to provide the other party with a
complete and accurate report of each such scheduled meeting or communication, as
well as any unscheduled meetings and communications, and, if in writing, with a
copy thereof.
5.8 Consents. Each Seller and Buyer shall diligently pursue obtaining
consents of all third parties and governmental authorities necessary to the
consummation of the transactions contemplated by this Agreement.
5.9 Publicity. All general notices, releases, statements and communications
to employees, suppliers, distributors and customers of the Companies and to the
general public and the press relating to the transactions covered by this
Agreement shall be made only at such times and in such manner as may be mutually
agreed upon by Sellers and Buyer.
5.10 No Solicitation. None of Sellers or the Companies shall, after the
date hereof until the earlier of the Closing or the termination of this
Agreement pursuant to Section 11.1 hereof, directly or indirectly, through any
officer, director, employee, agent or otherwise, solicit, initiate or encourage
submission of proposals or offers from any person relating to any acquisition or
purchase of all or (other than in the ordinary course of business) a substantial
portion of the assets of, or any equity interest in, any of the Companies or any
business combination with any of the Companies or, participate in any
negotiations regarding, or furnish to any other person any information with
respect to, or otherwise cooperate in any way with or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing.
5.11 Articles and By-laws. (a) Sellers covenant and agree that none of the
Companies shall amend its certificate or articles of incorporation or by-laws,
except as may be necessary to comply with the terms of this Agreement, or merge
or consolidate with or into any other corporation.
(b) Buyer covenants and agrees that it shall file on or before the Closing
Date the Charter Amendment and except with
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respect to such filing and the filing of an amendment to its articles of
incorporation to increase the authorized number of shares of Front Royal Class A
Stock to 20,000,000, Buyer shall not amend its articles of incorporation or
by-laws or merge or consolidate with or into any other corporation.
5.12 Breaches of Representations and Warranties. Sellers, on the one hand,
and Buyer, on the other hand, covenant and agree to disclose in writing to Buyer
and Sellers, respectively, any breach of any representation, warranty, covenant
or agreement of any party hereto promptly upon becoming aware thereof.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.7 [Regulatory Approvals]
and 6.10 [HSR], may be waived by Buyer):
6.1 Compliance with Agreement. Each of PIC and Trirock shall have performed
and complied in all material respects with all of its respective obligations
under this Agreement that are to be performed or complied with by it prior to or
on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate or
other, to be taken by Sellers and the Companies in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Buyer and Buyer's
counsel, and Sellers shall have made available to Buyer for examination the
originals or true and correct copies of all documents that Buyer may reasonably
request in connection with the transactions contemplated by this Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties made
by Sellers in this Agreement shall be true and correct as of the Closing Date
with the same force and effect as though such representations and warranties
have been made on the Closing Date, except as otherwise contemplated hereby and
except to the extent that such representations and warranties
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were made as of a specified date and as to such representations and warranties
the same shall continue on the Closing Date to have been true and correct as of
the specified date. Notwithstanding the foregoing, if any of the representations
and warranties set forth in Section 3C.20(b), (c) and (d) or Section 3C.21 are
not so true and correct as of the Closing Date but the condition precedent set
forth in Section 6.13 and Section 6.6(c)(v) has been met, then the condition
precedent set forth in this Section 6.4 shall be deemed to have been satisfied.
6.5 Agreements. The following agreements shall have been duly and validly
executed and delivered by the parties thereto and shall be in full force and
effect:
(a) the Shareholders Agreement;
(b) the Lease;
(c) the Non-Compete and Non-Solicitation Agreements;
(d) the Option Agreement; and
(e) the Amended and Restated License Agreement.
6.6 Additional Deliveries at Closing. Sellers shall have, or shall cause to
have, delivered to Buyer (a) certificates representing the Purchased Stock,
accompanied by stock powers duly endorsed in blank, with all required transfer
taxes or stamps paid for or affixed thereto, free and clear of all Liens, and
(b) the following documents, each duly executed and delivered and dated as of
the Closing Date: (i) the Opinion of PIC's Counsel; (ii) the Opinion of
Trirock's Counsel; (iii) PIC's Closing Certificate; (iv) Trirock's Closing
Certificate; (v) the Surplus Certificate; and (vi) the affidavits referred to in
Sections 3A.8 and 3B.7.
6.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Sellers, the Companies or Buyer to permit the sale of the Purchased Stock and
the other transactions contemplated hereby shall have been obtained and shall
remain in full force and effect (without any material term, condition or
restriction that is reasonably unacceptable to Buyer).
6.8 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement, except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to the Companies.
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6.9 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Companies shall have resigned from such
positions effective on the Closing Date.
6.10 Waiting Periods. All applicable waiting periods under Section 7A of
the Xxxxxxx Act and the HSR Act and the rules and regulations thereunder shall
have expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby may be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
6.11 Preferred Stock Sale Agreement. The closing under the Preferred Stock
Sale Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof.
6.12 Premier Stock Purchase Agreement. (a) The closing under the Premier
Stock Purchase Agreement shall have been consummated concurrently with the
Closing, in accordance with the terms thereof, including, without limitation,
the issuance by Premier of the reinsurance contract of the Company as provided
therein.
(b) PIC or Premier shall have assumed, pursuant to an assumption
reinsurance treaty in form and substance reasonably satisfactory to Buyer, all
of the private passenger automobile business written by the Company, and a cash
account of the Company in an amount equal to 100% of the loss, allocated loss
adjustment and unearned premium reserves for the private passenger automobile
business shall have been funded by PIC directly or indirectly through Premier.
6.13 Policyholders' Surplus. The amount of Surplus that will be shown on
the December 31, 1996 Annual Statement shall be equal to or greater than
$50,000,000.
6.14 Books and Records. Sellers shall have delivered to Buyer all minute
books, stock records and other corporate and financial records of each of the
Companies.
6.15 Disclaimers of Affiliation. PIC, Xxxxxxx X. XxXxxxxx, Xxxxxxx X.
Xxxxxxxx, Fort Washington and Premier, each shall have (a) filed with the
Department a disclaimer of affiliation under Section 4K of the Insurance Holding
Company System Regulatory Act and the Department shall have acknowledged and
concurred with such disclaimer, and (b) delivered an undertaking to Buyer to
file similar disclaimers with respect to any insurance company or any insurance
holding company anytime in the future Controlled (as defined in Section 1 of the
foregoing Act) by it or him.
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6.16 Certificate of Breaches. PIC shall have delivered to Buyer an
officer's certificate and Trirock shall have delivered to Buyer a general
partner certificate, in each case setting forth, to the best knowledge of
Sellers, any breaches of any Operational Representations of Buyer.
6.17 Phase II Environmental Report. Buyer shall have received from FRESI
the Phase II environmental report with respect to the properties to be leased
pursuant to the Lease.
ARTICLE VII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLERS
Each and every obligation of Sellers to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 7.7 [Regulatory Approvals]
and 7.9 [HSR] may be waived by Sellers):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
7.2 Proceedings and Instruments Satisfactory. All pro- ceedings, corporate
or other, to be taken by Buyer in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Sellers and their respective counsel, and
Buyer shall have made available to Sellers for examination the originals or true
and correct copies of all documents that Sellers may reasonably request in
connection with the transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding shall
be threatened or pending before any court or governmental agency that seeks
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties made
by Buyer in this Agreement shall be true and correct in all material respects as
of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as
otherwise contemplated hereby and except to the extent that such representations
and warranties were made as of a specified date and as to such representations
and warranties the same shall continue on
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the Closing Date to have been true and correct as of the specified date.
7.5 Agreements. The following agreements shall have been duly and validly
executed and delivered by the parties thereto and shall be in full force and
effect:
(a) the Shareholders Agreement;
(b) the Lease;
(c) the Non-Compete and Non-Solicitation Agreements;
(d) the Option Agreement; and
(e) the Amended and Restated License Agreement.
7.6 Additional Deliveries at Closing. Buyer shall have, or shall cause to
have, delivered: to each Seller, as appropriate, (a) the Cash Payment and
certificates representing the Preferred Stock, as provided in Section 2.3(b)
hereof, (b) the Trirock Note, (c) the following documents, each duly executed
and delivered and dated as of the Closing Date: (i) the Opinion of Buyer's
Counsel and (ii) the Buyer Closing Certificate, and (d) a copy of the Phase II
environmental report prepared by FRESI and delivered to Buyer prior to the
Closing Date with respect to the properties to be leased pursuant to the Lease.
7.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Sellers, the
Companies or Buyer to permit the sale of the Purchased Stock and the other
transactions contemplated hereby shall have been obtained and shall remain in
full force and effect (without any material term, condition or restriction that
is reasonably unacceptable to Sellers).
7.8 Consents. There shall have been obtained written consent with respect
to any Contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement, except for such consents the
failure of which to obtain would not, individually or in the aggregate, have a
Material Adverse Effect with respect to Buyer.
7.9 Waiting Periods. All applicable waiting periods under Section 7A of the
Xxxxxxx Act and the HSR Act and the rules and regulations thereunder shall have
expired without indication from the Federal Trade Commission or the United
States Justice Department that the transactions contemplated hereby any be
consummated only upon terms which differ adversely from the description of the
transaction set forth in any filing made on behalf of Buyer for any governmental
approval.
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7.10 Preferred Stock Sale Agreement. The closing under the Preferred Stock
Sale Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof.
7.11 Premier Stock Purchase Agreement. The closing under the Premier Stock
Purchase Agreement shall have been consummated concurrently with the Closing, in
accordance with the terms thereof. PIC shall have (a) assumed pursuant to an
assumption reinsurance treaty, all of the private passenger automobile business
written by the Company and (b) funded an account of the Company with cash in an
amount equal to 100% of the loss, loss adjustment and unearned premium reserves
for the private passenger automobile business reinsured by PIC.
7.12 Certificate of Breaches. Buyer shall have delivered to Sellers an
officer's certificate setting forth, to the best knowledge of Buyer, any
breaches of any Operational Representations of Sellers.
ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Companies relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than five years following the Closing Date; provided, however, prior to the
fifth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Sellers 30 Business Days' prior notice that Buyer intends to destroy
any or all of such books, papers and records and each Seller shall have the
right to review and remove any books, papers and records to be destroyed at
Sellers' expense. Buyer agrees to permit each Seller and its attorneys,
accountants, agents and designees access to such books, papers and records from
and after the Closing Date for all reasonable purposes. Any such examination
shall be at the expense of such Seller, shall be performed at the place such
books, papers and records are regularly maintained and shall not unreasonably
interfere with Buyer's or the Companies' normal business activities.
8.2 Access. Buyer and Sellers and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of the Companies and each other to
conduct such examinations and investigations of its or their business as it
deems necessary, provided that such examinations and investigations: (a) shall
be germane to rights or obligations arising out of this Agreement, the
operations of the Companies
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prior to the Closing Date or to the transactions occurring between the Companies
and their affiliates prior to the Closing Date; (b) shall be conducted only in
the presence of a designated representative of Buyer or Sellers, as appropriate;
(c) shall be during normal business hours; (d) shall not unreasonably interfere
with operations and activities; and (e) shall be subject to prior approval if
the information or documents requested are, in the reasonable opinion of an
officer, of a nature that may compromise the competitive position of Buyer or
Sellers. Buyer, on the one hand, and Sellers, on the other hand, shall cooperate
in all reasonable respects with each other's examinations and investigations.
8.3 Cooperation. Buyer and Sellers will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Sellers copies of the Forms
A filed with the Department and all correspondence with the Department with
respect thereto.
8.4 Confidentiality. Following the Closing, Sellers shall keep confidential
all information concerning the business, operations, properties, assets and
financial affairs of the Companies and may disclose such information only upon
receipt of prior written consent from Buyer, as required by law, or if such
disclosure is required (a) in connection with a Seller's filing of any state or
federal income tax returns, (b) in connection with filings made with the
Securities and Exchange Commission or any national securities exchange or (c) by
order of any judicial or administrative authority, provided, however, Sellers
shall not be required to keep confidential information that (x) is or becomes
generally available to the public other than as a result of disclosure by
Sellers, (y) is or becomes available to Sellers on a nonconfidential basis from
a source other than Buyer or the Front Royal Subsidiaries or (z) Sellers or any
of their Affiliates is required to disclose pursuant to applicable law, rule,
regulation or subpoena.
8.5 Use of Name. From and after the Closing Date, neither PIC nor Trirock
or their respective Affiliates shall (a) use the name "Rockwood" or any name
similar thereto or any derivation thereof, except that Rockwood Asset
Management, Inc. may continue to use the name "Rockwood" provided that its sole
business is the ownership and operation of real property in Rockwood,
Pennsylvania, or (b) use the names "Mid State," "Coal," "Comprehensive" or
"Somerset" or any names similar thereto or any derivations thereof in
connection, directly or indirectly, with the insurance business.
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8.6 Non-Solicitation of Employees. Sellers hereby agree that for a period
commencing on the Closing Date and ending three years thereafter, neither Seller
nor any of its Affiliates shall solicit for employment by either Seller or any
of its Affiliates any employees of any of the Companies.
8.7 President of the Company. Buyer covenants and agrees that it will not
permit the Company to elect Xxxx X. Xxxxxx as the President or Chief Executive
Officer of the Company without the prior approval of the Commissioner.
8.8 Relocation of Business; Access. (a) Buyer covenants and agrees that
prior to June 30, 2001 it will not permit the Company to move any of its
insurance operations from Somerset County, Pennsylvania.
(b) After the Closing, in connection with the prosecution and/or defense
of, those actions, claims, or beneficial interests in, those matters set forth
on Exhibit 8.8 by the Estate of Rockwood Insurance Company in Liquidation
("RIC"), without expense to RIC, Buyer shall cause the Company to cooperate and
assist RIC by making its personnel (including but not limited to Xxxx X. Xxxxxx,
Xxxxxx Xxxx and Xxxxx Xxx) and records available to RIC, its agents and counsel;
provided that such activities do not unreasonably interfere with the operations
of the business of the Company and, provided further, that all reasonably
incurred out-of-pocket expenses of the Company shall be reimbursed by RIC to the
Company upon receipt of substantiating documentation.
8.9 Trirock Not to Dissolve. Trirock covenants and agrees that it shall not
dissolve or wind up its affairs or take any action or fail to take any action
with a view to the foregoing, prior to the third anniversary of the Closing
Date, provided that if prior to such third anniversary a notice of an Indemnity
Claim is delivered by Buyer pursuant to Section 10.5, then Trirock shall not so
dissolve or wind up its affairs or so take any action or so fail to take any
action unless and until such Indemnity Claim is resolved pursuant to the terms
of Article X.
8.10 Pittsburgh Mutual Insurance Company. Buyer hereby acknowledges that it
has no rights to or any interest in Pittsburgh Mutual Insurance Company, a
mutual insurance company formed under the laws of the Commonwealth of
Pennsylvania, as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
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ARTICLE IX
TAX LOSSES
9.1 Tax Losses. Subject to the PIC Basket and the PIC Cap and the Trirock
Basket and the Trirock Cap, Sellers shall indemnify and hold harmless Buyer and
the Companies and their respective affiliates, officers, directors and employees
against any Tax Losses. To the extent that any breach by Sellers of the
representations and warranties contained in Section 3C.15 results in any Tax
Losses, such breach shall be subject to the terms and provisions of this Article
IX and the indemnification provisions relating hereto.
9.2 Contests. Sellers and their duly appointed representatives shall have
the right to supervise or otherwise coordinate any examination process and to
negotiate, resolve, settle or contest any asserted tax deficiencies that could
give rise to any Tax Losses. The foregoing notwithstanding, without Buyer's
prior written consent, Sellers shall not enter into any agreement that would
adversely affect Buyer or any of the Companies (including, without limitation,
liability for taxes with respect to taxable periods ending after the Closing
Date), except for adverse effects that are included in Tax Losses subject to
indemnification pursuant hereto. In the event Buyer does not consent to a
settlement agreement recommended by Sellers with respect to any Tax Losses, then
the aggregate amount of the indemnification payable by Sellers in connection
with such Tax Losses shall not exceed the amount that would otherwise have been
payable had Sellers so entered into such settlement agreement. Buyer shall
within 14 days after it has knowledge of the assertion or commencement thereof
notify Sellers of the written assertion of any claim or the commencement of any
suit, action, proceeding, investigation or audit (any of the foregoing, a
"Contest") that could give rise to any Tax Losses, and shall provide Sellers
with copies (subject to deletion of unrelated information) of all correspondence
relating to such Contest. Each party shall bear its own costs of defending
against such Contest.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations, warranties, covenants and agreements of
Sellers, on the one hand, and Buyer, on the other hand, contained in this
Agreement and the respective obligations of the parties with respect thereto,
shall survive the making of this Agreement, any investigations made by or on
behalf of the parties hereto and the Closing Date, and shall
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continue in full force and effect until the expiration of 30 months from the
Closing Date, except:
(i) with respect to Sections 3C.15 [Taxes], 3C.19 [Employee Benefit
Matters] and Article IX, the remedy for breach of which shall continue in
full force and effect until any claims or liabilities with respect thereto
shall be barred by the expiration of the applicable statute of limitations
or any extensions thereof; and
(ii) with respect to Sections 3A.4 [Title to Shares], 3B.4 [Title to
Shares] and 3C.3 [Capitalization] and the indemnification provided pursuant
to Section 10.2A(c) and Section 10.2B(c), to which there shall be no
expiration.
All such representations and warranties and liabilities shall expire and
terminate at the time provided for above, except for any claims relating to any
specific breaches of any representations or warranties which are asserted in
writing on or before the applicable termination date. Each of the parties agrees
to give notice to the breaching party of any breach of any such representation,
warranty, covenant or agreement, describing such breach in reasonable detail, as
soon as practicable after the discovery thereof; provided, however, that the
failure to receive such notice shall not relieve the breaching party from any
liability in respect to such breach unless and to the extent that the breaching
party shall be prevented from curing such breach as a direct result of its
failure to receive a timely notice. Any claim for indemnification for which
notice has been given within the prescribed period may be prosecuted to
conclusion notwithstanding the subsequent expiration of such period.
10.2A Indemnification by PIC. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, PIC agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
claims, suits, losses, expenses, damages, obligations, liabilities (including
costs and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of PIC to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by PIC;
(c) any liabilities of PIC or its Affiliates (other than the Companies),
except for (i) those liabilities incurred pursuant to this Article X and (ii)
liabilities of PIC or its
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Affiliates which are actually the primary obligation of any of the Companies;
(d) claims under Article IX; or
(e) the inaccuracy of any representation and warranty made by the Company
in the Premier Stock Purchase Agreement when made or as of the date of closing
thereunder.
10.2B Indemnification by Trirock. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, Trirock agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
Losses which result from or are related to any of the following:
(a) any breach or failure of Trirock to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Trirock;
(c) any liabilities of Trirock or its Affiliates (other than the
Companies), except for (i) those liabilities incurred pursuant to this Article X
and (ii) liabilities of Trirock or its Affiliates which are actually the primary
obligations of any of the Companies; or
(d) claims under Article IX.
10.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 10.4, Buyer agrees to and does hereby indemnify and hold
each Seller and their respective Affiliates, officers, directors and employees
harmless against any Losses resulting to such Seller from any of the following:
(a) any breach or failure of Buyer to perform any of its covenants or
agreements set forth herein;
(b) the inaccuracy of any representations or warranties made to such Seller
by Buyer herein;
(c) any liabilities of Buyer or its Affiliates (other than the Companies),
except for those liabilities of Buyer or its Affiliates incurred pursuant to
this Article X; or
(d) the conduct of the Companies' business after the Closing Date.
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10.4 Limitation of Liability. (a) Subject to clause (b) below:
(i) Buyer shall not have any liability to indemnify Sellers in respect
to Losses incurred by Sellers pursuant to Section 10.3(a) and (b) unless
and until the aggregate amount of such Losses exceeds $250,000 (the "Buyer
Basket"); and
(ii) Sellers shall not have any liability to indemnify Buyer in
respect of Losses incurred by Buyer pursuant to Section 10.2A(a), (b) and
(d) or Section 10.2B(a), (b) and (d), in the case of Trirock unless and
until the aggregate amount of such Losses exceeds $58,333 (the "Trirock
Basket") and in the case of PIC unless and until the aggregate amount of
such Losses exceeds $191,667 (the "PIC Basket"),
in which event the party seeking indemnification may recover the full amount of
such Losses other than the Buyer Basket, the Trirock Basket or the PIC Basket,
as the case may be; provided that (1) recovery by Sellers from Buyer in respect
of such Losses shall be limited to an aggregate amount of $38,000,000 (the
"Buyer Cap"), and (2) the recovery by Buyer from Trirock in respect of such
Losses shall be limited to $8,854,000 (the "Trirock Cap") and the recovery by
Buyer from PIC in respect of such Losses shall be limited to $29,146,000 (the
"PIC Cap").
(b) Notwithstanding anything in clause (a) above:
(i) Buyer may recover all Losses whenever incurred pursuant to Section
10.2A(c) and Section 10.2B(c), without regard to the 30-month limitation
set forth in Section 10.1, the PIC Cap or the Trirock Cap;
(ii) Buyer may recover all Losses incurred as a result of a breach of
the representation, warranty, covenant or agreement set forth in Sections
3C.10 [Transactions with Interested Persons], 5.1(d) [Carry on in Regular
Course-payment of dividends], 5.2 [Indebtedness] and as provided in Section
2.2(b)(iv), without regard to the Trirock Basket or the PIC Basket;
(iii) Buyer may recover all Losses whenever incurred pursuant to
Section 10.2A(e) without regard to the 30-month limitation set forth in
Section 10.1, the PIC Basket or the PIC Cap;
(iv) Sellers may recover all Losses whenever incurred pursuant to
Section 10.3(c) and (d), without regard to the 30-month limitation set
forth in Section 10.1 or the Buyer Cap; and
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(v) any Losses of the type covered by, or incurred pursuant to the
Lease ("Lease Losses") shall be satisfied in accordance with the terms
thereof.
Subject to the provisions of this Section 10.4, with respect to any Losses
resulting from the breach of any representation, warranty, covenant or agreement
set forth in Article IIIC, Buyer shall be entitled to recover (y) from PIC an
amount equal to 76.7% of such Losses and (z) from Trirock an amount equal to
23.3% of such Losses.
(c) Subject to the limitations hereinafter set forth, after payment by PIC
under this Article X of an aggregate amount equal to the PIC Cash Payment, PIC
may elect to satisfy its indemnification obligations under this Article X in
whole or in part by surrender to Buyer of some or all of the Front Royal
Preferred Stock, free and clear of all Liens. PIC shall receive a
dollar-for-dollar credit against PIC's indemnification obligation in respect of
Losses incurred by Buyer equal to the [stated value] of the Front Royal
Preferred Stock surrendered hereunder. Notwithstanding the foregoing, PIC shall
not be entitled to satisfy any of its indemnification obligations with respect
to any Tax Losses or any Lease Losses by delivery of any Front Royal Preferred
Stock and the indemnification of such Tax Losses or Lease Losses may be
satisfied only by the payment of immediately available funds.
10.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article X (an "Indemnity
Claim"), the Indemnified Party shall promptly provide notice of such Indemnity
Claim, to the party from whom indemnification is sought (the "Indemnifying
Party") (and in any event within 15 days after becoming aware of such Indemnity
Claim). The failure to receive such notice shall not relieve the Indemnifying
Party from any liability in respect of such claim unless and to the extent that
the Indemnifying Party shall be prevented from curing such situation as a direct
result of its failure to receive timely notice. At the time the Indemnity Claim
is made and thereafter, the Indemnified Party shall provide the Indemnifying
Party with copies of any materials in its possession describing the facts or
containing information providing the basis for the Indemnity Claim. If the
Indemnity Claim involves a claim by a third party (a "Third Party Indemnity
Claim"), the Indemnifying Party may assume and control at its expense the
defense of the claim by the third party, provided that the Indemnifying Party
agrees in writing with respect to such Third Party Indemnity Claim that it is
obligated hereunder to indemnify and hold the Indemnified Party harmless in
accordance with the terms of this Article X; and provided, further, that the
Indemnified Party shall be entitled to participate in the defense of such claim
at its own expense. The failure of the Indemnifying Party to assume the defense
of any
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such claim shall not affect any indemnification obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article X for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
10.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of any
indemnification payable under any of the provisions of this Article X shall be
(a) net of any federal or state income tax benefit realized or the then-present
value (based on a discount rate of 5%) of any such income tax benefit to be
realized by the Indemnified Party (or, where Buyer is the Indemnified Party, any
of the Companies) by reason of the facts and circumstances giving rise to the
indemnification, and (b) increased by the amount of any federal or state income
tax required to be paid by the Indemnified Party on the accrual or receipt of
the indemnification payment. For purposes of the preceding sentence, the amount
of any state income tax benefit or cost shall take into account the federal
income tax effect of such benefit or cost.
10.7 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 10.2 or 10.3, shall be submitted to arbitration in Somerset
County, Pennsylvania in the following manner:
(a) The party desiring to submit such controversy to arbitration shall give
to the other party notice in writing, stating with specificity the matter upon
which arbitration is sought. The written notice shall also name the arbitrator
selected by such party, which arbitrator shall be a present or retired insurance
company executive unaffiliated with such party.
(b) Within ten Business Days following the receipt of such notice, the
other party shall give written notice to the party desiring arbitration of the
arbitrator selected by it, which second arbitrator shall likewise be a present
or retired insurance company executive unaffiliated with such party.
(c) Upon the appointment of the second arbitrator, the two arbitrators so
chosen shall select a third arbitrator, which
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third arbitrator shall likewise be a present or retired insurance company
executive unaffiliated with such party.
(d) The three arbitrators thus chosen shall give to each of the parties
hereto written notice of the time and place of hearing, which hearing shall be
held in Somerset County, Pennsylvania not less than ten Business Days, nor more
than 20 Business Days, after the selection of the third arbitrator.
(e) At the time and place (in Somerset County, Pennsylvania) appointed, the
three arbitrators shall proceed with the hearing unless for some good cause, of
which a majority of the arbitrators shall be the judge, it shall be postponed
until some other day within a reasonable time. The parties hereto shall have
full opportunity to be heard on any question thus submitted.
(f) The arbitrators shall be relieved of following judicial formalities and
the rules of evidence shall not apply to such hearing. The determination by a
majority of the arbitrators shall be made in writing and a copy thereof
delivered to each of the parties hereto. The arbitrators shall in every case
deliver their decision within 60 days after the hearing, unless the parties
shall otherwise agree to extend the time. Unless the arbitrator determines
otherwise, all costs and expenses of arbitration and the reasonable legal fees
and disbursements of the prevailing party shall be paid by the other party.
(g) The determination of the arbitrator in any arbitration proceeding
hereunder shall bind Buyer and both PIC and Trirock, provided that each received
notice of such proceeding and the opportunity to participate therein and shall
be final and unappealable.
(h) Any award, judgment or determination of the arbitrators hereunder may
be entered for enforcement in the Court of Common Pleas in Somerset County,
Pennsylvania, or in the United States District Court for the Western District of
Pennsylvania, and each of the parties hereto consents to venue and the personal
jurisdiction of such courts in connection with any such entry and enforcement.
10.8 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article X from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
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ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Buyer, on the one hand, and both of the
Sellers, on the other hand;
(b) by Buyer, on the one hand, or either of the Sellers, on the other hand,
if the Closing Date shall not have occurred on or before December 31, 1996;
provided that the right to terminate this Agreement under this Section 11.1(b)
shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or has resulted in the failure of the
Closing Date to occur on or before such date;
(c) by Buyer, on the one hand, or either of the Sellers, on the other hand,
if any court of competent jurisdiction in the United States or other United
States governmental body shall have issued an order, decree or ruling or taken
any other action restraining, enjoining or otherwise prohibiting the sale of the
Purchased Stock or delivery of any part of the Purchase Price or preventing the
occurrence of any condition precedent and such order, decree, ruling or other
action shall have become final and nonappealable.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the
other, other than the provisions of Article XII of this Agreement, which shall
survive any such termination, and any other provision of this Agreement that
specifically sets forth that it is to so survive.
11.3 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that (i) knowingly waives any representation, warranty,
agreement or condition with respect to another party under subsection (b) and
(c) or (ii) consummates the Closing notwithstanding its delivery of the
certificate set forth in Section 6.16 or Section 7.12, as the case may be, shall
thereafter be barred from seeking indemnification from such other party for such
waived breach of any representation, warranty, agreement or condition. Any
agreement on the part of any party to any such extension or waiver shall be
valid only if (A) set
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forth in an instrument in writing signed on behalf of such party or (B) set
forth in such certificate referred to in Section 6.16 or Section 7.12, as the
case may be.
ARTICLE XII
DEPOSIT; PAYMENTS ON TERMINATION
12.1 Deposit. On the date of the execution of this Agreement, Buyer will
deposit with the Escrow Agent (Deposit) $1,000,000 to be held in accordance with
the provisions of this Article XII (the "Deposit") and the Escrow Agreement
(Deposit). Principal and interest earned on the Deposit shall be disbursed
according to Sections 12.2, 12.3 and 12.4 below.
12.2 Distribution. At the Closing, Buyer shall instruct the Escrow Agent
(Deposit) to distribute, by wire transfer to an account designated by PIC at
least three Business Days prior to the Closing Date, $766,667 of the Deposit as
part of the Cash Payment of the Purchase Price as provided in Section 2.3,
together with any interest accrued thereon during the time it is held by the
Escrow Agent (Deposit). Concurrently with the payment of monies due under the
Trirock Note, Buyer shall instruct the Escrow Agent (Deposit) to distribute, by
wire transfer to an account designated by Trirock at least three business days
prior to such payment date, $233,333 of the Deposit as part of the monies
payable under the Trirock Note as provided therein, together with any interest
accrued thereon during the time it is held by the Escrow Agent (Deposit). If the
Closing does not occur the Deposit will be distributed to Buyer or Sellers, as
the case may be, as provided in Sections 12.3 and 12.4 below.
12.3 Payment to Sellers. If all the conditions to Buyer's obligations under
this Agreement set forth in Article VI have been satisfied on or before December
31, 1996, or any mutual extension thereof, and Buyer fails materially to perform
its obligations hereunder, Sellers may elect to terminate this Agreement
pursuant to Section 11.1(b) and, subject to the provisions of the Escrow
Agreement (Deposit), upon such termination (unless such termination is as a
result of a breach of any of the Operational Representations of Buyer) Sellers
may direct the Escrow Agent (Deposit) to deliver the Deposit plus all interest
earned thereon, to the Sellers in accordance with the written instructions of
Sellers. In the event of a termination of this Agreement by Sellers pursuant to
Section 11.1(b), forfeiture of the Deposit by Buyer shall be Sellers' sole
remedy under this Agreement.
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12.4 Payment to Buyer. In the event of any termination of this Agreement,
except as provided in Section 12.3 hereof, the Deposit plus all interest earned
thereon shall be paid to Buyer upon such termination. In addition, if all the
conditions to Sellers' obligations under this Agreement set forth in Article VII
have been satisfied on or before December 31, 1996, or any mutual extension
thereof, and either of the Sellers fails materially to perform its obligations
hereunder, Buyer may elect to terminate this Agreement pursuant to Section
11.1(b) and upon such termination (a) subject to the terms and provisions of the
Escrow Agreement (Deposit), Buyer may direct the Escrow Agent (Deposit) to
deliver the Deposit plus all interest earned thereon to Buyer in accordance with
the written instructions of Buyer and (b) unless such termination is as a result
of a breach of any of the Operational Representations of Sellers or the failure
of Sellers to meet the condition precedent set forth in Section 6.13, PIC shall
pay Buyer an additional $766,667 and Trirock shall pay Buyer an additional
$233,333 in immediately available funds in accordance with the written
instructions of Buyer. The actual amount of damages that Buyer will suffer if
Sellers materially fail to perform their obligations hereunder is difficult and
impracticable to fix with certainty. Accordingly, Sellers hereby agree that the
payment of such $1,000,000 in the aggregate shall be liquidated damages, and not
a penalty or forfeiture, such amount being a reasonable estimate of Buyer's
damages. In the event of a termination of this Agreement by Buyer pursuant to
Section 11.1(b), the return of the Deposit to Buyer and payment of such
liquidation damages shall be Buyer's sole remedy under this Agreement.
ARTICLE XIII
MISCELLANEOUS
13.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
13.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, subject to the provisions of Article XII, each of the
parties hereto shall pay the fees and expenses of their respective counsel,
investment bankers, financial advisors, accountants and other experts and the
other expenses incident to the negotiation and preparation of
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this Agreement and consummation of the transactions contemplated hereby.
13.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Pennsylvania, without regard to the
conflicts of law rules thereof.
13.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
13.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Sellers and Buyer will execute, and Buyer shall cause the
Companies to execute, any additional instruments necessary to consummate the
transactions contemplated hereby.
13.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (i) when delivered if delivered personally or by messenger or by overnight
delivery service, or (ii) three days after mailing when mailed by registered or
certified United States mail, postage prepaid, return receipt requested, or
(iii) when received if sent by telecopy (provided that a copy is mailed
concurrently therewith pursuant to the terms hereof), in all cases addressed to
the person for whom it is intended at its address set forth below or to such
other address as a party shall have designated by notice in writing to the other
party in the manner provided by this Section 13.6:
If to Buyer: Front Royal, Inc.
0000 Xxxxxxx Xxxx.
Xxxxx 000
Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: J. Xxxx Xxxxx, Chief
Executive Officer and
Xxxxx X. Xxxxx, Chief
Financial Officer
Telecopier No.: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxxxx Xxxxxx
Aronsohn & Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Telecopier No.: (000) 000-0000
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If PIC: PIC Insurance Group, Inc.
000 Xxxx Xxxxxx
Xxxxxx Xxxxx
Xx. Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telecopier No.: (000) 000-0000
With a copy to: Dilworth, Paxson, Xxxxxx & Xxxxxxxx LLP
3200 Mellon Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxxxxx X. XxXxxxxxx, Esq.
Telecopier No.: (000) 000-0000
If to Trirock: Trirock Limited Partnership
c/o Grogan, Graffam, XxXxxxxx & Lucchino, PC
Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxx X. XxXxxxxx, Xx.
Telecopier No.: (000) 000-0000
With a copy to: Xxxxxxxxxxx & Xxxxxxxx LLP
0000 Xxxxxx Xxxxxxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxx, Esq.
Telecopier No.: (000) 000-0000
13.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Table of Contents
and Article and Section headings in this Agreement are inserted for convenience
of reference only and shall not constitute a part hereof.
13.8 Interpretation. All references in this Agreements to contracts,
agreements, leases, Employee Benefit Plans or other understandings or
arrangements shall refer to oral as well as written matters.
13.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
13.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Sellers, Buyer and the Companies assume no liability to any third party because
of any reliance on the
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representations, warranties and agreements of Sellers and Buyer contained in
this Agreement.
13.11 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties. The requirements of this
Section 13.11 may not be waived.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
PIC INSURANCE GROUP, INC.
By:_________________________________
Name:
Title:
TRIROCK LIMITED PARTNERSHIP
By:_________________________________
a General Partner
FRONT ROYAL, INC.
By:_________________________________
Name:
Title:
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