EXHIBIT 10(e)
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STOCK PURCHASE AGREEMENT
by and among
FUND AMERICAN ENTERPRISES HOLDINGS, INC.,
SKANDIA U.S. HOLDING CORPORATION,
and
SKANDIA AMERICA CORPORATION
dated as of August 8, 1995
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TABLE OF CONTENTS
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ARTICLE I DEFINITIONS................................ 2
1.1 Definitions................................ 2
ARTICLE II PURCHASE AND SALE OF THE SHARES............ 13
2.1 Purchase and Sale of the Shares............ 13
2.2 The Closing................................ 13
2.3 Deliveries at the Closing.................. 13
2.4 Purchase Price Adjustment.................. 14
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
SELLERS.................................... 16
3.1 Organization of the Sellers................ 16
3.2 Authorization, Validity and Enforceability. 17
3.3 No Conflicts............................... 17
3.4 Consents and Approvals..................... 18
3.5 Organization of the Companies.............. 18
3.6 Subsidiaries............................... 19
3.7 Capitalization............................. 20
3.8 Title to Shares............................ 21
3.9 Northern County; Charter Indemnity......... 22
3.10 Corporate Minutes.......................... 24
3.11 Financial Statements....................... 24
3.12 Liabilities................................ 26
3.13 Absence of Changes......................... 26
3.14 Legal Proceedings.......................... 30
3.15 Compliance with Laws....................... 31
3.16 Licenses and Permits....................... 31
3.17 Regulatory Matters......................... 32
3.18 Policy Forms and Rates..................... 33
3.19 Agents and Producers....................... 34
3.20 Threats of Cancellation.................... 34
3.21 Reserves................................... 34
3.22 Reinsurance................................ 35
3.23 Contracts.................................. 36
3.24 Property................................... 39
3.25 Intellectual Property...................... 39
3.26 Investments................................ 40
3.27 Accounts Receivable........................ 40
3.28 Employee Benefit Plans..................... 41
3.29 Employee Relations......................... 44
3.30 Officers, Directors and Key Employees...... 44
3.31 Insurance.................................. 45
3.32 Tax Matters................................ 45
3.33 Environmental Matters...................... 49
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3.34 Bank Accounts.............................. 50
3.35 No Brokers................................. 50
3.36 Full Disclosure............................ 50
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE
PURCHASER.................................. 51
4.1 Organization of the Purchaser.............. 51
4.2 Authorization, Validity and Enforceability. 51
4.3 No Conflicts............................... 51
4.4 Consents and Approvals..................... 52
4.5 Legal Proceedings.......................... 52
4.6 Investment Intent.......................... 52
4.7 No Brokers................................. 52
ARTICLE V COVENANTS.................................. 53
5.1 Conduct of Business........................ 53
5.2 Access to Information; Consultation;
Confidentiality............................ 54
5.3 Cooperation and Reasonable Best Efforts.... 55
5.4 Consents and Approvals..................... 56
5.5 Notification of Certain Matters............ 56
5.6 Public Announcements....................... 57
5.7 No Solicitation............................ 57
5.8 Interim Financial Statements and
Investment Reports......................... 58
5.9 Tax Matters................................ 60
5.10 338 Elections.............................. 64
5.11 Employee Benefit Matters................... 66
5.12 Insurance Coverage......................... 69
5.13 Debt Restructuring......................... 69
5.14 Intercompany Accounts; Affiliate
Agreements................................. 72
5.15 Corporate Records.......................... 73
5.16 Instruments................................ 73
5.17 Trade Names................................ 73
5.18 Reinsurance Arrangements................... 74
5.19 Non-Solicitation Covenant.................. 75
ARTICLE VI CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE.................. 75
6.1 Representations, Warranties and Covenants.. 75
6.2 Consents................................... 75
6.3 No Injunction or Illegality................ 76
6.4 HSR Act.................................... 76
6.5 Opinions of Counsel to the Sellers......... 76
6.6 Certificates............................... 76
6.7 Resignation of Directors................... 77
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6.8 Debt Restructuring......................... 77
6.9 Reinsurance Arrangements................... 77
6.10 Northern County............................ 77
6.11 Ratings.................................... 77
6.12 Transfer Taxes............................. 77
ARTICLE VII CONDITIONS TO THE OBLIGATIONS
OF THE SELLERS TO CLOSE.................... 77
7.1 Representations, Warranties and Covenants.. 78
7.2 Consents................................... 78
7.3 No Injunction or Illegality................ 78
7.4 HSR Act.................................... 78
7.5 Opinion of Counsel to the Purchaser........ 78
7.6 Certificates............................... 78
ARTICLE VIII INDEMNIFICATION............................ 79
8.1 Survival................................... 79
8.2 Indemnification............................ 79
8.3 Tax Indemnification........................ 82
8.4 Miscellaneous.............................. 86
ARTICLE IX TERMINATION................................ 87
9.1 Termination of Agreement................... 87
9.2 Effect of Termination...................... 88
ARTICLE X MISCELLANEOUS.............................. 88
10.1 Notices.................................... 88
10.2 Fees and Expenses.......................... 89
10.3 Specific Performance....................... 89
10.4 Consent to Jurisdiction; Service of
Process.................................... 90
10.5 Entire Agreement; Waivers and Amendments... 90
10.6 Assignment; Binding Effect................. 90
10.7 Severability............................... 91
10.8 No Third Party Beneficiaries............... 91
10.9 Governing Law.............................. 91
10.10 Interpretation............................. 91
10.11 Captions................................... 91
10.12 Counterparts............................... 91
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EXHIBITS
A Form of New Charter Agency Note
B Form of Northern County Guaranty
C Form of Charter Indemnity Reinsurance Agreement
D Form of Release and Discharge
E Matters Covered by Opinions of Counsel to the Sellers and their Affiliates
F Matters Covered by Opinion of Counsel to the Purchaser
SCHEDULES
3.4 Consents of the Sellers and Affiliates
3.5 Foreign Qualifications of the Companies
3.6 Subsidiaries
3.7 Capitalization of the Companies
3.9 Northern County
3.13 Interim Changes and Events
3.14 Legal Proceedings of the Sellers and Affiliates
3.16 Licenses and Permits
3.17 Regulatory Matters
3.18 Policy Forms
3.19 Agents and Producers
3.20 Cancellations
3.21 Reserves
3.22 Reinsurance
3.23 Contracts
3.24 Property
3.24A Liens or Encumbrances
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3.25 Intellectual Property
3.26 Investments
3.27 Employee Benefit Plans
3.30 Officers, Directors and Key Employees
3.31 Insurance
3.32 Tax Matters
3.34 Accounts
4.4 Consents of the Purchaser
4.5 Legal Proceedings of the Purchaser
5.14 Intercompany Accounts and Affiliate Agreements
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STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of August 8, 1995, by and among FUND AMERICAN ENTERPRISES HOLDINGS, INC., a
Delaware corporation (the "Purchaser"), SKANDIA U.S. HOLDING CORPORATION, a
Delaware corporation ("Skandia U.S."), and SKANDIA AMERICA CORPORATION, a
Delaware corporation ("Skandia America", and collectively together with Skandia
U.S., the "Sellers").
R E C I T A L S
WHEREAS, Skandia U.S. owns all of the issued and outstanding capital stock
of Skandia America; and
WHEREAS, Skandia America owns all of the issued and outstanding capital
stock of each of (i) Valley Group, Inc., an Oregon corporation ("Valley"), (ii)
Charter Group, Inc., a Texas corporation ("Charter"), and (iii) NCM Management
Corporation, a Delaware corporation ("NCM"); and
WHEREAS, Charter is the holder of an Amended and Restated Surplus Debenture
Bond due December 31, 2000, in the aggregate principal amount of $3,500,000 (the
"Charter Surplus Note") of Charter Indemnity Company, a Texas stock insurance
company and a direct wholly owned subsidiary of Charter ("Charter Indemnity");
and
WHEREAS, NCM is the holder of a Surplus Debenture due July 1, 2010, in the
aggregate principal amount of $1,790,000 (the "Northern County Surplus Note") of
Northern County Mutual Insurance Company, a Texas county mutual insurance
company affiliated with the Sellers ("Northern County"); and
WHEREAS, NCM is also the "holder" of a General Agency Managerial Contract
with Northern County, pursuant to which NCM is the exclusive general agent and
manager of Northern County (as amended and extended to date, the "Northern
County Management Contract"); and
WHEREAS, the Purchaser wishes to acquire Valley, Charter and NCM
(collectively, the "Companies"), together with their subsidiaries, the Charter
Surplus Note, the Northern County Surplus Note and the Northern County
Management Contract, from the Sellers, and the Sellers wish to sell the
Companies, together with their subsidiaries, the Charter Surplus Note, the
Northern County Surplus Note and the Northern County Management Contract, to the
Purchaser, upon the terms and subject to the conditions set forth herein; and
WHEREAS, concurrently herewith, Skandia Insurance Company Ltd (publ), a
Swedish insurance company ("Skandia Ltd") and the ultimate parent company of the
Sellers and the Companies, is entering into a Parent Support Agreement with the
Purchaser, in order to induce the Purchaser to enter into this Agreement and
consummate the transactions contemplated hereby;
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The following terms when used in this Agreement
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(including the Schedules and Exhibits hereto) shall have the following
respective meanings:
"Affiliate" of a Person means any other Person that directly or indirectly
through one or more intermediaries controls, is controlled by or is under common
control with such Person. For purposes of this definition and the definition of
"Subsidiary" below, "control" (or "controlled", as the context may require)
shall have the meaning set forth in section 1501(a)(2) of the New York Insurance
Law, as in effect on the date hereof.
"Affiliate Agreements" has the meaning set forth in Section 3.23.
"Allocation" has the meaning set forth in Section 5.10(c).
"Alternative Transaction" and "Alternative Transaction Proposal" have the
respective meanings set forth in Section 5.7.
2
"Basket Amount" has the meaning set forth in Section 8.2.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City are required or authorized by law to be
closed.
"C&L" has the meaning set forth in Section 3.11.
"California Insurance Code" means the California Insurance Code and the
regulations promulgated thereunder.
"California SAP" means the statutory accounting practices prescribed or
permitted by the California Department of Insurance.
"Charter" has the meaning set forth in the recitals to this Agreement.
"Charter Agency" means Charter General Agency, Inc., a Texas corporation
and a direct wholly owned Subsidiary of Charter.
"Charter Agency/Xxxxxxx Note" means the Unsecured Note made by Charter
Agency to Xxxxxxx on June 30, 1995, in the principal amount of $5,650,000,
bearing interest at the annual rate of 6.5% and having a final maturity date of
December 31, 1995. The term "Charter Agency/Xxxxxxx Note" shall also be deemed
to include the foregoing Unsecured Note, as amended in accordance with the terms
and provisions hereof.
"Charter Downstream Note" means the Unsecured Note made by Charter to
Charter Agency on August 26, 1991, in the principal amount of $2,000,000,
bearing interest at the annual rate of 7.5% and having a final maturity date of
August 26, 1996.
"Charter Financial Statements" means (i) the audited consolidated balance
sheets of Charter and its subsidiaries at December 31, 1994, 1993 and 1992 and
the related consolidated statements of operations, changes in stockholder's
equity and cash flows of Charter and its subsidiaries for the periods then
ended, including in each case the related notes and unqualified auditor's report
thereon, and (ii) the unaudited consolidated balance sheet of Charter and its
subsidiaries at March 31, 1995, and the related consolidated statements of
operations, changes in stockholder's equity and cash flows of Charter and its
subsidiaries for the quarterly period then ended.
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"Charter Indemnity" has the meaning set forth in the recitals to this
Agreement.
"Charter Indemnity Reinsurance Agreement" has the meaning set forth in
Section 5.18.
"Charter Intercompany Notes" means the Charter Surplus Note, the Charter
Upstream Note, the Charter Downstream Note and the Charter Agency/Xxxxxxx Note,
collectively.
"Charter Shares" has the meaning set forth in Section 2.1.
"Charter Statutory Statements" means the Annual Statements and the
Quarterly Statement of Charter Indemnity as filed with the Texas Department of
Insurance for the years ended December 31, 1994, 1993 and 1992 and for the
quarterly period ended March 31, 1995, in each case including all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith.
"Charter Subsidiaries" means Charter Agency, L-P Premium, Charter Indemnity
and Monarch, collectively.
"Charter Surplus Note" has the meaning set forth in the recitals to this
Agreement.
"Charter Upstream Note" means the Promissory Note made by Charter to
Skandia Direct Operations Corporation (which has since been merged with and into
Skandia America) on December 31, 1993, in the principal amount of $2,000,000,
bearing interest at the annual rate of 5.6%, all payable upon demand.
"Closing" has the meaning set forth in Section 2.2.
"Closing Date" has the meaning set forth in Section 2.2.
"Code" means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations promulgated thereunder.
"Companies" has the meaning set forth in the recitals to this Agreement.
"Consents" has the meaning set forth in Section 3.4.
4
"Contracts" means all written or oral contracts, agreements, undertakings,
indentures, notes, debentures, bonds, loans, instruments, leases, mortgages,
commitments or other binding arrangements.
"Employee" shall mean each current full time or part time employee of the
Companies or the Company Subsidiaries, including any such employee who is on
disability or leave of absence.
"Environmental Laws" means the Federal Comprehensive Environmental
Response, Compensation and Liability Act, the Federal Water Pollution Control
Act, the Safe Drinking Water Act, the Federal Clean Water Act, the Federal Clean
Air Act, the Federal Resource Conservation and Recovery Act, the Hazardous
Materials Transportation Act, the Federal Solid Waste Disposal Act, the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, and the Occupational Safety and Health Act, each as amended, and all other
environmental statutes enacted by any Governmental Entity, and any executive
order, ordinances, rules or regulations promulgated under any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Estimated Tax Payments" means the sum of (i) the estimated Tax payments
made by the Companies and their Subsidiaries (excluding Northern County) with
respect to their federal income Tax for the Taxable Period beginning January 1,
1995, and ending on the Closing Date and (ii) any credits against such Tax that
are attributable to the Companies and/or their Subsidiaries (excluding Northern
County).
"Executive Officers" means, with respect to any corporation, the chairman
of the board of directors, the chief executive officer, the president, the chief
financial and principal accounting officer, any executive or senior vice
presidents, the corporate secretary and the treasurer of such corporation (and
any other individuals performing comparable functions), and with respect to each
of the Companies and their Subsidiaries, shall also include the vice presidents
thereof.
"Financial Statements" means the Charter Financial Statements, the NCM
Financial Statements and the Valley Financial Statements, collectively.
"GAAP" means United States generally accepted accounting principles.
5
"Governmental Entity" means any federal, state, local or foreign
government, political subdivision, legislature, court, agency, department,
bureau, commission or other governmental or regulatory authority, body or
instrumentality, including any insurance or securities regulatory authority and
any industry or other non-governmental self-regulatory organizations.
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder.
"Indemnified Party" and "Indemnifying Party" have the respective meanings
set forth in Section 8.2.
"Indemnity Claim" has the meaning set forth in Section 8.3(d).
"Independent Actuary" has the meaning set forth in Section 2.4.
"Insurance Company" and "Insurance Companies" have the meanings set forth
in Section 3.18.
"Insurance Permit" means any Permit in any jurisdiction to issue,
underwrite, assume, place, sell or otherwise transact insurance or reinsurance,
or to engage in premium finance activities.
"Intellectual Property" has the meaning set forth in Section 3.25.
"Interim Financial Statements" has the meaning set forth in Section 5.8.
"Interim Statutory Statements" has the meaning set forth in Section 5.8.
"Investment Guidelines" has the meaning set forth in Section 3.26.
"IRS" means the United States Internal Revenue Service.
"Xxxxxxx" means Xxxxxxx Premium Services, Inc., a Texas corporation and an
indirect wholly owned Subsidiary of Skandia America.
"Knowledge" means, with respect to any Person, the actual knowledge (in the
case of the Sellers, after reasonable inquiry of the Executive Officers of each
of the Companies and their Subsidiaries) of the Executive Officers of such
Person.
6
"Liabilities" has the meaning set forth in Section 3.12.
"Lien or Encumbrance" means any lien, pledge, mortgage, security interest,
claim, lease, charge, option, right, easement, servitude, transfer limit,
restriction or other encumbrance.
"Losses" has the meaning set forth in Section 8.2.
"L-P Premium" means L-P Premium Funding, Inc., a Texas corporation and a
direct wholly owned Subsidiary of Charter.
"Material" means material to the business, operations, assets, Properties,
financial condition, results of operations, Insurance Permits or other material
Permits of (i) Valley and its Subsidiaries, taken as a whole, or (ii) Charter,
NCM and their Subsidiaries (including Northern County), taken as a whole;
provided, however, that, for purposes hereof, insofar as Charter, NCM and their
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Subsidiaries (including Northern County) are concerned, any matter, occurrence
or other item individually or in the aggregate involving an amount, or having a
value, of at least $1,000,000 shall be deemed to be so material (and any matter,
occurrence or other item individually and in the aggregate involving an amount,
or having a value, of less than $1,000,000 shall be deemed not to be so
material).
"Material Adverse Effect" means any material adverse effect on the
business, operations, assets, Properties, financial condition, results of
operations, Insurance Permits or other material Permits of (i) Valley and its
Subsidiaries, taken as a whole, or (ii) Charter, NCM and their Subsidiaries
(including Northern County), taken as a whole; provided, however, that, for
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purposes hereof, insofar as Charter, NCM and their Subsidiaries (including
Northern County) are concerned, any adverse effect thereon individually or in
the aggregate involving an amount, or having a value, of at least $1,000,000
shall be deemed to be such a material adverse effect (and any adverse effect
thereon individually and in the aggregate involving an amount, or having a
value, of less than $1,000,000 shall be deemed not to be such a material adverse
effect).
"Monarch" means Monarch Premium Funding, Inc., a Texas corporation and a
direct wholly owned Subsidiary of Charter Agency.
"Monarch Note" means the Promissory Note in Favour of Skandia Capital AB
(Renewal), issued by Monarch to Skandia Capital AB (publ) on May 24, 1995, in
the principal amount of $14,000,000, bearing interest at the rate of 7.8%
7
per annum and having a maturity date of August 22, 1995. The term "Monarch
Note" shall also be deemed to include any note issued in replacement of the
foregoing Promissory Note in Favour of Skandia Capital AB (publ) in accordance
with the terms and provisions hereof.
"NCM" has the meaning set forth in the recitals to this Agreement.
"NCM Shares" has the meaning set forth in Section 2.1.
"NCM Financial Statements" means the unaudited balance sheets of NCM at
December 31, 1994 and March 31, 1995, and the related statements of income of
NCM for the year and quarterly period (respectively) then ended.
"Net Losses" means all losses and loss adjustment expenses (including,
without limitation, incurred but not reported losses), net of ceded reinsurance.
"New Charter Agency Note" has the meaning set forth in Section 5.13.
"1994 Loss Reserves" has the meaning set forth in Section 2.4.
"1996 Loss Reserve Development" has the meaning set forth in Section 2.4.
"1996 Valley Statutory Statement" has the meaning set forth in Section 2.4.
"Northern County", "Northern County Surplus Note" and "Northern County
Management Contract" have the respective meanings set forth in the recitals to
this Agreement.
"Northern County Guaranty" has the meaning set forth in Section 5.18.
"Northern County Statutory Statements" means the Annual Statements and the
Quarterly Statement of Northern County as filed with the Texas Department of
Insurance for the years ended December 31, 1994, 1993 and 1992 and for the
quarterly period ended March 31, 1995, in each case including all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith.
"Notice of Disagreement" has the meaning set forth in Section 2.4.
8
"PBGC" means the Pension Benefits Guaranty Corporation.
"Permits" means all licenses, certificates of authority, permits, orders,
consents, approvals, registrations, authorizations, qualifications and filings
under any federal, state, local or foreign laws or with any Governmental
Entities.
"Person" means any individual, corporation, partnership, limited liability
company, firm, joint venture, association, joint stock company, trust,
unincorporated organization, Governmental Entity or other entity or
organization.
"Plan" means "any employee benefit plan" (as that term is defined in
section 3(3) of ERISA), as well as any other formal or informal plan,
arrangement or contract involving direct or indirect compensation, in which any
current or former officers or employees of any of the Companies, their
Subsidiaries or Northern County participate, or to which any of the Companies,
their Subsidiaries or Northern County has any liability or under which any of
the Companies, their Subsidiaries or Northern County has any present or future
obligations or liability on behalf of their respective employees or former
employees or their dependents or beneficiaries, including but not limited to,
each retirement, pension, profit-sharing, thrift, savings, target benefit,
employee stock ownership, cash or deferred, multiple employer, multiemployer or
other similar plan or program, each other deferred or incentive compensation,
bonus, stock option, employee stock purchase, "phantom stock" or stock
appreciation right plan, each other program providing payment or reimbursement
for or of medical, dental or visual care, psychiatric counselling, or vacation,
sick, disability or severance pay and each other "fringe benefit" plan or
arrangement.
"Property" means any real, personal or mixed property, whether tangible or
intangible.
"Prior Bidders" has the meaning set forth in Section 5.7.
"Purchaser" has the meaning set forth in the first paragraph of this
Agreement.
"Reinsurance Contracts" has the meaning set forth in Section 3.22.
"Representatives" has the meaning set forth in Section 5.2.
9
"SARC" means Skandia America Reinsurance Corporation, a Delaware stock
insurance company and a direct wholly owned subsidiary of Skandia America.
"SARC Reinsurance Advance" has the meaning set forth in Section 3.9.
"Seller's Retirement Plan" shall mean the Skandia Direct Operations
Corporation Retirement Plan.
"Seller's Defined Contribution Plan" shall mean the Skandia Direct
Operations Employee Savings Plan.
"Sellers" has the meaning set forth in the first paragraph of this
Agreement.
"Sellers Group" has the meaning set forth in Section 3.32(a).
"Shares" has the meaning set forth in Section 2.2.
"Short Period Tax" means the consolidated federal income Tax that would be
imposed on the Companies and the Subsidiaries (excluding Northern County) for
their Taxable Period that begins January 1, 1995, and ends on the Closing Date
determined as if: (i) the Companies and their Subsidiaries file a consolidated
federal income Tax Return for such Taxable Period; (ii) such Tax Return includes
only the items of income, gain, loss, deduction, and credit realized by these
corporations during such period (determined on a closing of the books method)
plus items of deduction, loss, or credit that carryover to these corporations
from prior Taxable Periods; and (iii) the items of income, gain, loss, and
deduction attributable to the 338 Elections, if any, and all transactions
contemplated by this Agreement, are disregarded.
"Skandia America" and "Skandia U.S." have the respective meanings set
forth in the first paragraph of this Agreement.
"Skandia Ltd" has the meaning set forth in the recitals to this Agreement.
"Statutory Statements" means the Charter Statutory Statements and the
Valley Statutory Statements, collectively.
"Subsidiary" means, with respect to any Person, any entity controlled by
such Person. For purposes of this Agreement, Northern County shall be deemed to
be a Subsidiary of NCM except where otherwise indicated herein.
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"Successor Plan" shall mean a defined contribution plan qualified under
Code Section 401(a), established no later than January 1, 1996, providing
immediate participation for Employees.
"Tax" and "Taxes" mean all income, profits, gains, gross receipts, net
worth, premium, value added, ad valorem, sales, use, excise, stamp, transfer,
franchise, withholding, payroll, employment, occupation, workers' compensation,
disability, severance, unemployment insurance, social security and property
taxes, and all other taxes of any kind whatsoever, together with any interest,
penalties and additions thereto imposed by any federal, state, local or foreign
government or any agency or political subdivision of any such government,
including all amounts imposed as a result of being a member of an affiliated or
combined group.
"Tax Claim" has the meaning set forth in Section 8.3(d).
"Tax Closing Agreement" means any written and legally binding agreement
with a taxing authority relating to Taxes.
"Tax Reserve" has the meaning given to such term in Section 3.32(c).
"Tax Return" means all returns, reports, elections, estimates,
declarations, information statements and other forms and documents (including
all schedules, exhibits, and other attachments thereto) relating to, and
required to be filed in connection with, any Taxes (including estimated Taxes).
"Tax Ruling" means any written ruling by a taxing authority relating to
Taxes.
"Tax Settlement Auditor" has the meaning set forth in Section 8.3(d).
"Taxable Period" means any taxable year or any other period that is treated
as a taxable year (including any taxable period ending on the Closing Date or
beginning on the day following the Closing Date) with respect to which any Tax
may be imposed under any statute, rule, or regulation.
"Texas Insurance Code" means the Texas Insurance Code and the regulations
promulgated thereunder.
"Texas SAP" means the statutory accounting practices prescribed or
permitted by the Texas Department of Insurance.
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"338 Elections" has the meaning given to such term in Section 5.10(a).
"338 Tax Cost" means the excess, if any, of (i) the consolidated federal
income Tax that is projected to be incurred by the Sellers Group for its Taxable
Period that includes the Closing Date over (ii) the projected consolidated
federal income Tax that would have been incurred by the Sellers Group for such
Taxable Period if the 338 Elections were not made. The projected Taxes in both
(i) and (ii) above shall be determined without regard to items of deduction,
loss, and credit that, in the absence of the 338 Elections, would reduce the
taxable income of the Sellers Group below zero.
"Third Party Claim" has the meaning set forth in Section 8.2.
"Valley" has the meaning set forth in the recitals to this Agreement.
"Valley Financial Statements" means (i) the audited consolidated balance
sheets of Valley and its subsidiaries at December 31, 1994 and 1993 and the
related consolidated statements of income, changes in stockholder's equity and
cash flows of Valley and its subsidiaries for the years then ended, including in
each case the related notes and unqualified auditor's report thereon, and (ii)
the unaudited consolidated balance sheet of Valley and its subsidiaries at March
31, 1995, and the related consolidated statements of income, changes in
stockholder's equity and cash flows of Valley and its subsidiaries for the
quarterly period then ended.
"Valley Insurance" means Valley Insurance Company, a California stock
insurance company and a direct wholly owned Subsidiary of Valley.
"Valley Shares" has the meaning set forth in Section 2.1.
"Valley Statutory Statements" means the Annual Statements and the Quarterly
Statement of Valley Insurance as filed with the California Department of
Insurance for the years ended December 31, 1994, 1993 and 1992 and for the
quarterly period ended March 31, 1995, including in each case all exhibits,
interrogatories, notes and schedules thereto and any actuarial opinion,
affirmation or certification filed in connection therewith.
"Valley Subsidiaries" means Valley Insurance and Valley Pacific Inc., an
Oregon corporation, collectively.
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"WARN" shall mean the Worker Adjustment and Retraining Notification Act of
1988.
ARTICLE II
PURCHASE AND SALE OF THE SHARES
2.1 Purchase and Sale of the Shares. (a) Upon the terms and subject to
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the conditions set forth in this Agreement, the Purchaser agrees to purchase
from Skandia America, and Skandia America agrees to (and Skandia U.S. agrees to
cause Skandia America to) sell, assign, transfer and deliver to the Purchaser,
all of the outstanding capital stock of Valley (the "Valley Shares"), free and
clear of all Liens or Encumbrances, for a cash purchase price equal to
$37,790,928.
(b) Upon the terms and subject to the conditions set forth in this
Agreement, the Purchaser agrees to purchase from Skandia America, and Skandia
America agrees to (and Skandia U.S. agrees to cause Skandia America to) sell,
assign, transfer and deliver to the Purchaser, (i) all of the outstanding
capital stock of Charter (the "Charter Shares") and (ii) all of the outstanding
capital stock of NCM (the "NCM Shares"), in each case free and clear of all
Liens or Encumbrances, for an aggregate cash purchase price equal to $3,269,885.
2.2 The Closing. Subject to the satisfaction or waiver of all of the
-----------
conditions to closing set forth in Articles VI and VII, the closing (the
"Closing") of the purchase and sale of the Valley Shares, the NCM Shares and the
Charter Shares (collectively, the "Shares") hereunder shall take place at the
offices of Xxxxx Xxxxxxxxxx, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx at
10:00 a.m., New York City time, on the fifth Business Day after the satisfaction
or waiver of the conditions set forth in Article VI and VII, or at such other
time or place as may be mutually agreed upon by the parties hereto. The date on
which the Closing occurs is referred to herein as the "Closing Date."
2.3 Deliveries at the Closing. At the Closing:
-------------------------
(a) Skandia America shall (and Skandia U.S. shall cause Skandia America
to) deliver to the Purchaser certificates representing the Shares, duly endorsed
in blank for transfer or accompanied by stock powers duly endorsed in blank;
(b) the Sellers shall deliver to the Purchaser all other documents and
instruments required hereunder to be
13
delivered by the Sellers to the Purchaser at the Closing; and
(c) the Purchaser shall (i) pay to Skandia America the aggregate purchase
price for the Shares (as provided in Section 2.1(a) and (b)) by wire transfer of
immediately available funds to an account or accounts designated by Skandia
America in a written notice delivered to the Purchaser not later than two (2)
Business Days prior to the Closing Date, and (ii) deliver to the Sellers all
other documents and instruments required hereunder to be delivered by the
Purchaser to the Sellers at the Closing.
2.4 Purchase Price Adjustment. The purchase price for the Valley Shares,
-------------------------
as provided in Section 2.1(a), shall be subject to post-Closing adjustment as
follows:
(a) As promptly as reasonably practicable after it becomes available, the
Purchaser shall deliver to Skandia America a true and complete copy of the
Annual Statement of Valley Insurance as filed with the California Department of
Insurance (or other appropriate insurance regulatory authority) for the year
ended December 31, 1996 (the "1996 Valley Statutory Statement"), together with
any actuarial opinion, affirmation or certification filed in connection
therewith and all work papers and actuarial memoranda used by Valley Insurance
in establishing the 1996 Loss Reserve Development (it being understood that
neither the Purchaser nor Valley Insurance shall be required to prepare any such
work papers or actuarial memoranda outside the ordinary course of business).
The 1996 Valley Statutory Statement will be prepared in conformity with
California SAP (or any other then applicable statutory accounting practices) and
the books and records of Valley Insurance, and will present fairly the statutory
financial position of Valley Insurance as of December 31, 1996 and the statutory
results of operations of Valley Insurance for the period then ended.
(b) Following the delivery of the 1996 Valley Statutory Statement to
Skandia America, the Purchaser will cause Valley Insurance to allow the Sellers
to have reasonable access to the books, records and work papers of Valley
Insurance relating to the 1996 Loss Reserve Development referred to below. In
the event that the Sellers have any disagreement with the 1996 Loss Reserve
Development reflected in the 1996 Valley Statutory Statement, the Sellers shall
give written notice of all such disagreements (a "Notice of Disagreement") to
the Purchaser within twenty (20) Business Days after the delivery of the 1996
Valley Statutory Statement to Skandia America. Any Notice of Disagreement shall
set forth each item in disagreement, shall provide reasonable specificity as to
the basis for each disagreement, and shall specify the total
14
adjustment to the 1996 Loss Reserve Development proposed by the Sellers as a
result of such items in disagreement.
(c) If the Purchaser does not receive a Notice of Disagreement within such
twenty Business Day period, the 1996 Loss Reserve Development reflected in the
1996 Valley Statutory Statement shall be final and binding upon the parties
hereto. If, on the other hand, the Purchaser receives a Notice of Disagreement
within such period, the parties shall negotiate in good faith to resolve all
disagreements specified therein as promptly as practicable. If the parties are
unable to resolve all such disagreements within fifteen (15) days of the receipt
by the Purchaser of the Notice of Disagreement, then all unresolved
disagreements shall be submitted to an independent actuarial firm of national
standing and reputation as the parties shall jointly select and retain (the
"Independent Actuary") for resolution in accordance with this Agreement. In the
event that the parties are unable to jointly select an Independent Actuary, each
of the Purchaser, on the one hand, and the Sellers, on the other hand, shall
select an independent certified public accounting firm of national standing and
reputation, which firms shall jointly select the Independent Actuary for joint
retention by the parties. The parties shall, and the Purchaser shall cause
Valley Insurance to, cooperate in good faith with the Independent Actuary and
shall give the Independent Actuary access to all books, records, work papers and
other information and documents relating to the items in disagreement as the
Independent Actuary may reasonably request for purposes of such resolution. The
Independent Actuary shall, within thirty (30) days after its engagement, deliver
to the parties a conclusive written resolution of all disagreements submitted to
it, which written resolution shall be in accordance with this Agreement and
shall be final and binding upon the parties hereto. The 1996 Loss Reserve
Development reflected in the 1996 Valley Statutory Statement shall be adjusted
accordingly to reflect any such resolution and, as so adjusted, shall be deemed
final for purposes of the purchase price adjustment provided in the next
paragraph. The Sellers, on the one hand, and the Purchaser, on the other hand,
shall each pay one-half of the fees and expenses of the Independent Actuary.
(d) If (i) the aggregate amount of reserves as of December 31, 1996 for
Net Losses, together with the aggregate amount of Net Losses paid during the
period from January 1, 1995 until December 31, 1996, in each case with respect
to insurance and reinsurance business issued, underwritten, assumed or renewed
on or prior to December 31, 1994 (the "1996 Loss Reserve Development") is less
than (ii) the aggregate amount of reserves for Net Losses reflected in the
December 31, 1994 Valley Statutory Statement for such
15
insurance and reinsurance business (the "1994 Loss Reserves"), the Purchaser
shall pay to Skandia America the amount of such deficiency (in an amount not to
exceed $3,000,000). If the 1996 Loss Reserve Development is greater than the
1994 Loss Reserves, the Sellers will pay to the Purchaser the amount of such
excess (in an amount not to exceed $3,000,000). All payments under this Section
shall be made not later than twenty (20) Business Days following the Purchaser's
delivery of the 1996 Valley Statutory Statements to Skandia America (or, in the
case of any amounts due as a result of the resolution of any disagreements, not
later than five (5) Business Days following the resolution of all such
disagreements), by wire transfer of immediately available funds to an account or
accounts designated by the payee to the payor in the manner specified herein for
delivery of notices. Any amount payable under this Section 2.4(d) shall
constitute an adjustment to the purchase price paid by the Purchaser for the
Valley Shares.
(e) From the Closing Date until December 31, 1996, the Purchaser agrees to
cause Valley Insurance to (i) pay and settle claims with respect to insurance
and reinsurance business issued, underwritten, assumed or renewed by Valley
Insurance on or prior to December 31, 1994, generally in accordance with past
practice, and (ii) establish reserves for Net Losses with respect to such
insurance and reinsurance business in accordance with generally accepted
actuarial standards.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby jointly and severally represent and warrant to the
Purchaser as follows:
3.1 Organization of the Sellers. Each of the Sellers is a corporation
---------------------------
duly organized, validly existing and in good standing under the laws of the
state or jurisdiction of its incorporation, and has all requisite corporate
power and authority to own, lease and operate its assets and Properties
(including, without limitation, the Shares) and to conduct its business as
currently being conducted, except where the failure to have such corporate power
and authority would not, individually or in the aggregate, have a Material
Adverse Effect. Each of the Sellers is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the nature of its business or
the ownership of its Properties makes such qualification necessary, except where
the failure to be so qualified or in good standing would not, individually or in
16
the aggregate, have a Material Adverse Effect or a material adverse effect on
the ability of any of the Sellers to execute and deliver this Agreement, perform
its obligations hereunder or consummate the transactions contemplated hereby.
Skandia U.S. is a direct wholly owned Subsidiary of Skandia Ltd, and Skandia
America is a direct wholly owned Subsidiary of Skandia U.S. The Sellers have
heretofore delivered to the Purchaser true and complete copies of the
certificate or articles of incorporation (or other charter or organization
documents), including all amendments thereto, and by-laws, as currently in
effect, of each of the Sellers.
3.2 Authorization, Validity and Enforceability. Each of the Sellers has
------------------------------------------
all requisite corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby, including, without limitation, the sale of the
Shares hereunder. The execution, delivery and performance of this Agreement by
the Sellers and the consummation of the transactions contemplated hereby by the
Sellers have been duly and validly authorized by all necessary corporate action
on the part of the Sellers and no other corporate proceedings on the part of any
of the Sellers (including any proceedings of stockholders of the Sellers) are
necessary to authorize the execution, delivery and performance of this Agreement
or the consummation of any of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by each of the Sellers and
constitutes the legal, valid and binding obligation of each of the Sellers,
enforceable against each of the Sellers in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting creditors' rights generally and except as rights to
specific enforcement may be limited by the application of equitable principles
(whether such equitable principles are applied in a proceeding at law or in
equity).
3.3 No Conflicts. The execution and delivery by the Sellers of this
------------
Agreement, the performance by the Sellers of their obligations hereunder and the
consummation of the transactions contemplated hereby do not and will not
conflict with, result in any breach or violation of, constitute a default under
(or an event which with the giving of notice or the lapse of time or both would
constitute a default under), give rise to any right of termination or
acceleration of any right or obligation of any of the Sellers, the Companies or
the Subsidiaries of any of the Companies (including Northern County) under
(assuming for such purposes that the Consents required under the HSR Act and the
Consents set forth in Schedule 3.4 are duly made, obtained or given, as the case
may be), or result in
17
the creation or imposition of any Lien or Encumbrance upon any assets or
Properties of any of the Companies or the Subsidiaries of any of the Companies
(including Northern County) by reason of the terms of, (a) the certificate or
articles of incorporation, by-laws or other charter or organization documents of
any of the Sellers, the Companies or the Subsidiaries of any of the Companies
(including Northern County), (b) any of the Shares, the Charter Intercompany
Notes, the Northern County Surplus Note, the Monarch Note or the Northern County
Management Contract, (c) any Contract to which any of the Sellers, the Companies
or the Subsidiaries of any of the Companies (including Northern County) is a
party or by or to which any of them or their assets or Properties (including,
without limitation, the Shares, the Charter Intercompany Notes and the Northern
County Surplus Note) may be bound or subject, (d) any applicable order, writ,
judgment, injunction, award, decree, law, statute, ordinance, rule or regulation
or (e) any Insurance Permit or other material Permit of any of them, other than,
in the case of clause (c) only, any conflict, breach, violation, default,
termination or acceleration which would not, individually or in the aggregate
together with all such other conflicts, breaches, violations, defaults,
terminations and accelerations, have a Material Adverse Effect or a material
adverse effect on the ability of any of the Sellers to execute and deliver this
Agreement, perform its obligations hereunder or consummate the transactions
contemplated hereby.
3.4 Consents and Approvals. Except as required under the HSR Act and as
----------------------
set forth in Schedule 3.4 hereto, no consent, approval, authorization, license
or order of, registration or filing with, or notice to, any federal, state,
local, foreign or other Governmental Entity or any other Person (collectively,
"Consents") is necessary to be obtained, made or given by any of the Sellers,
SARC, the Companies or the Subsidiaries of any of the Companies (including
Northern County) in connection with the execution and delivery by the Sellers of
this Agreement, the performance by the Sellers of their obligations hereunder
and the consummation of the transactions contemplated hereby.
3.5 Organization of the Companies. Each of the Companies is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and has all requisite power and authority to own,
lease and operate its assets and Properties (including, in the case of Charter,
the Charter Surplus Note and, in the case of NCM, the Northern County Surplus
Note) and to conduct its business as currently being conducted. Each of the
Companies is duly qualified and in good standing as a foreign corporation in all
jurisdictions in which the nature
18
of its business or the ownership of its Properties makes such qualification
necessary, except where the failure to be so qualified or in good standing would
not, individually or in the aggregate, have a Material Adverse Effect. All such
jurisdictions are listed in Schedule 3.5 hereto. No other jurisdiction has
claimed, in writing, that any of the Companies is required to hold a Permit
issued by any Governmental Entity therein, and none of the Companies files or is
required to file any Tax Returns, or owns or leases real Property, in any other
jurisdictions. The Sellers have heretofore delivered to the Purchaser true and
complete copies of the certificate or articles of incorporation (or other
charter or organization documents), including all amendments thereto, and by-
laws, as currently in effect, of each of the Companies.
3.6 Subsidiaries. (a) The Companies have no Subsidiaries other than the
------------
Valley Subsidiaries, the Charter Subsidiaries and Northern County. Each of the
Valley Subsidiaries and the Charter Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all requisite power and authority to own, lease and
operate its assets and Properties and to conduct its business as currently being
conducted. Each of the Valley Subsidiaries and the Charter Subsidiaries is duly
qualified and in good standing as a foreign corporation in all jurisdictions in
which the nature of its business or the ownership of its Properties makes such
qualification necessary, except where the failure to be so qualified or in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect. All such jurisdictions are listed in Schedule 3.6 hereto. No other
jurisdiction has claimed, in writing, that any of the Valley Subsidiaries or the
Charter Subsidiaries is required to hold a Permit issued by any Governmental
Entity therein, and none of the Valley Subsidiaries or the Charter Subsidiaries
files or is required to file any Tax Returns, or owns or leases real Property,
in any other jurisdictions. Except for the Valley Subsidiaries and the Charter
Subsidiaries and as set forth in Schedule 3.6 hereto, none of the Companies
directly or indirectly owns any interest in any other Person; without limiting
the foregoing, none of the Valley Subsidiaries or the Charter Subsidiaries
directly or indirectly owns any interest in any other Person other than, in the
case of Charter Agency, Monarch. The Sellers have heretofore delivered to the
Purchaser true and complete copies of the certificate or articles of
incorporation (or other charter or organization documents), including all
amendments thereto, and by-laws, as currently in effect, of each of the Valley
Subsidiaries and the Charter Subsidiaries.
19
(b) Schedule 3.6 hereto sets forth the designation, par value and the
number of authorized, issued and outstanding shares of each class or series of
capital stock of each of the Valley Subsidiaries and the Charter Subsidiaries.
Except for the Monarch Note, the Charter Agency/Xxxxxxx Note and as set forth in
Schedule 3.6, no preferred stock, bonds, debentures, notes, debt instruments,
evidences of indebtedness or other securities of any kind, of any of the Valley
Subsidiaries or the Charter Subsidiaries are authorized, issued or outstanding.
All of the outstanding capital stock of each of the Valley Subsidiaries and the
Charter Subsidiaries is duly authorized, validly issued, fully paid and non-
assessable. All of the outstanding capital stock of each of the Valley
Subsidiaries is owned of record and beneficially by Valley, all of the
outstanding capital stock of the Charter Subsidiaries (other than Monarch) is
owned of record and beneficially by Charter, and all of the outstanding capital
stock of Monarch is owned of record and beneficially by Charter Agency, in each
case free and clear of any Lien or Encumbrance.
(c) None of the Valley Subsidiaries or the Charter Subsidiaries has issued
any securities in violation of any preemptive or similar rights, and there are
no subscriptions, options, warrants, calls, commitments, preemptive rights or
other rights of any kind (absolute, contingent or otherwise) to purchase or
otherwise receive, nor any securities or instruments of any kind convertible
into or exchangeable for, any capital stock (including, without limitation,
outstanding, authorized but unissued, unauthorized, treasury or other shares
thereof) or other equity interest or any debt security or instrument of any of
the Valley Subsidiaries or the Charter Subsidiaries. Except as set forth in
Schedule 3.6 or as provided in the HSR Act, the California Insurance Code, the
California General Corporation Law, the Texas Insurance Code or the Texas
Business Corporation Act, there are no restrictions upon the voting or transfer
of, or the declaration or payment of any dividend or distribution on, any shares
of capital stock of any of the Valley Subsidiaries or the Charter Subsidiaries.
3.7 Capitalization. (a) Schedule 3.7 hereto sets forth the designation,
--------------
par value and the number of authorized, issued and outstanding shares of each
class or series of capital stock of each of the Companies. Except for the
Charter Intercompany Notes and as set forth in Schedule 3.7, no preferred stock,
bonds, debentures, notes, debt instruments, evidences of indebtedness or other
securities of any kind, of any of the Companies are authorized, issued or
outstanding. All of the Shares are duly authorized, validly issued, fully paid
and non-assessable, and are owned of record and beneficially by
20
Skandia America, free and clear of any Lien or Encumbrance (other than
restrictions on the transferability of the Shares provided in the California
Insurance Code or the Texas Insurance Code).
(b) True and complete copies of the Charter Intercompany Notes and the
Monarch Note (as each of the same may have been amended or modified) have
heretofore been delivered by the Sellers to the Purchaser. Schedule 3.7 hereto
sets forth the principal, interest and all other amounts outstanding (specifying
accrued and unpaid amounts as of a date not earlier than (10) Business Days
prior hereto) under each of the Charter Intercompany Notes and the Monarch Note.
The Charter Surplus Note is duly authorized, validly issued, fully paid and non-
assessable, and is owned of record and beneficially by Charter, free and clear
of any Lien or Encumbrance. The Charter Upstream Note is owned of record and
beneficially by Skandia America, the Charter Downstream Note is owned of record
and beneficially by Charter Agency, the Charter Agency/Xxxxxxx Note is owned of
record and beneficially by Xxxxxxx, and the Monarch Note is owned of record and
beneficially by Skandia Capital AB (publ), in each case free and clear of any
Lien or Encumbrance. None of the borrowers under the Charter Intercompany Notes
or the Monarch Note is in default thereunder (including, without limitation, in
the payment of principal or interest).
(c) None of the Companies has issued any securities in violation of any
preemptive or similar rights and, except for this Agreement, there are no
subscriptions, options, warrants, calls, commitments, preemptive rights or other
rights of any kind (absolute, contingent or otherwise) to purchase or otherwise
receive, nor any securities or instruments of any kind convertible into or
exchangeable for, any capital stock (including, without limitation, outstanding,
authorized but unissued, unauthorized, treasury or other shares thereof) or
other equity interest or any debt security or instrument of the Companies.
Except as set forth in Schedule 3.7 or as provided in the HSR Act, the
California Insurance Code, the California General Corporation Law, the Texas
Insurance Code or the Texas Business Corporation Act, there are no restrictions
upon the voting or transfer of, or the declaration or payment of any dividend or
distribution on, any shares of capital stock of any of the Companies.
3.8 Title to Shares. The sale and delivery of the Shares as contemplated
---------------
by this Agreement are not subject to any preemptive right, right of first
refusal or other right or restriction (other than restrictions on
transferability of the Shares provided in the HSR Act, the California Insurance
Code and the Texas Insurance Code).
21
Upon the delivery of the Shares as provided in Section 2.3, the Purchaser will
acquire good and marketable title to each of the Shares, free and clear of any
Lien or Encumbrance (other than any Liens or Encumbrances created by the
Purchaser and any restrictions on transferability of the Shares provided in the
California Insurance Code and the Texas Insurance Code), and will be entitled to
all the rights of a holder of such Shares.
3.9 Northern County; Charter Indemnity. (a) Northern County is a county
----------------------------------
mutual insurance company duly organized, validly existing and in good standing
under the laws of the State of Texas, and has all requisite power and authority
to own, lease and operate its assets and Properties and to conduct its business
as currently being conducted. Northern County is duly licensed as a county
mutual insurance company under Chapter 17 of the Texas Insurance Code to
transact property and casualty insurance anywhere in the State of Texas, and is
not licensed or qualified to do business under any other Texas law or in any
other jurisdiction. No jurisdiction other than Texas has claimed, in writing,
that Northern County is required to hold a Permit issued by any Governmental
Entity therein, and Northern County neither files nor is required to file any
Tax Returns in any jurisdiction other than Texas. Northern County has no
Subsidiaries and owns no direct or indirect interest in any other Person. The
Sellers have heretofore delivered to the Purchaser a true and complete copy of
the charter and any other organization documents, including all amendments
thereto, of Northern County.
(b) Except for the Northern County Surplus Note (a true and complete copy
of which has heretofore been delivered by the Sellers to the Purchaser) and the
reinsurance advance from SARC described in Schedule 3.9 (the "SARC Reinsurance
Advance"), no bonds, debentures, notes, debt instruments, evidences of
indebtedness or other securities of any kind of Northern County are authorized,
issued or outstanding. The Northern County Surplus Note is duly authorized,
validly issued, fully paid, non-assessable and enforceable against Northern
County in accordance with its terms, and is owned of record and beneficially by
NCM, free and clear of any Lien or Encumbrance (other than pursuant to any
Contracts and undertakings specified in Schedule 3.9 and as provided in the
Texas Insurance Code). Schedule 3.9 contains a true and complete copy of all
Contracts (other than the Northern County Surplus Note itself and this
Agreement) relating, in whole or in part, to the Northern County Surplus Note.
Northern County is not in default under the Northern County Surplus Note
(including, without limitation, in the payment of principal or interest which
has been approved for payment pursuant to the terms
22
thereof), and NCM is not in default under any such Contract or undertaking
relating thereto.
(c) The Sellers have heretofore delivered to the Purchaser a true and
complete copy of the Northern County Management Contract, including all
amendments and extensions thereto. The Northern County Management Contract is
in full force and effect, and constitutes the legal, valid and binding
obligation of each party thereto, enforceable against each such party in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and except as rights to specific performance may be limited by
the application of equitable principles (whether such equitable principles are
applied in a proceeding at law or in equity). Neither Northern County nor NCM
is in default under the Northern County Management Contract, nor does any
condition exist that with notice or lapse of time or both would constitute such
a default thereunder. By virtue of the Northern County Management Contract, NCM
has the sole and exclusive right and power to manage the business and operations
of Northern County. Except for the directors of NCM (solely in their capacities
as such) and as specified in Schedule 3.9, NCM is the only Person who performs
services for, or is entitled to compensation from, Northern County. Assuming
the Texas Insurance Commissioner approves the transactions contemplated hereby,
the Northern County Management Contract will not be terminable or, subject to
Section 6.10, otherwise modified by reason of the transactions contemplated by
this Agreement. Other than the consent of the Board of Directors of Northern
County and as provided in the Texas Insurance Code, there is no limitation or
restriction on, or Consent required for, the assignment or delegation by NCM of
any of its rights, duties, powers or privileges under or in respect of the
Northern County Management Contract.
(d) From the date of its incorporation until December 29, 1994, NCM
engaged in no business or activities other than in connection with its
organization. Since the latter date, NCM has engaged in no business or
activities other than acting as the general managerial agent of Northern County
pursuant to the Northern County Management Contract.
(e) All insurance and reinsurance issued, underwritten, assumed or renewed
by Charter Indemnity on or before the date hereof consists solely of (and all
insurance and reinsurance issued, underwritten, assumed or renewed by Charter
Indemnity on or prior to the Closing Date will consist solely of) insurance or
reinsurance of (i) private passenger automobile liability and physical damage
risks and
23
(ii) mobile home and personal dwelling fire property risks, in each case
retroceded by SARC to Charter Indemnity.
3.10 Corporate Minutes. The Sellers have heretofore made available to the
-----------------
Purchaser true and complete copies, or the complete original, minute books of
each of the Companies and their Subsidiaries (including Northern County). The
minute books of each of the Companies and their Subsidiaries (including Northern
County) accurately reflect in all material respects all actions taken at
meetings, or by written consent in lieu of meetings, of the stockholders, boards
of directors and all committees of such boards of directors of each of the
Companies and their Subsidiaries (including Northern County), respectively, and
(in the case of Northern County) the policyholders of Northern County, since
January 1, 1990. Since such date, all material corporate actions taken by the
Companies and their Subsidiaries (including Northern County) have been duly
authorized, and no such corporate actions have been taken in breach or violation
of the certificate or articles of incorporation, by-laws or other charter or
organization documents of any of the Companies or their Subsidiaries (including
Northern County).
3.11 Financial Statements. (a) The Sellers have heretofore delivered to
--------------------
the Purchaser true and complete copies of the Valley Financial Statements, the
Valley Statutory Statements, the Charter Financial Statements, the Charter
Statutory Statements, the NCM Financial Statements and the Northern County
Statutory Statements.
(b) The Valley Financial Statements were prepared in accordance with GAAP
consistently applied throughout the periods involved, were prepared in
accordance with the books and records of Valley and its Subsidiaries, have been
audited by Coopers & Xxxxxxx LLP, certified public accountants ("C&L"), and
present fairly the financial position of Valley and its Subsidiaries at the
respective dates thereof and the results of operations of Valley and its
Subsidiaries for the respective periods then ended (except that the quarterly
Valley Financial Statements have not been audited and do not contain full
footnote disclosures in accordance with GAAP and are subject to normal recurring
year-end audit adjustments).
(c) The balance sheets of Valley and the related statements of income and
cash flows included in the Valley Statutory Statements were prepared in
conformity with California SAP consistently applied throughout the periods
involved, were prepared in accordance with the books and records of Valley
Insurance, have been audited by C&L, and present fairly the statutory financial
position of Valley Insurance at the respective dates thereof and the statutory
24
results of operations of Valley Insurance for the respective periods then ended.
The Valley Statutory Statements complied in all material respects with all
applicable laws and were complete and correct in all material respects when
filed, and no material deficiency has been asserted with respect to any of the
Valley Statutory Statements by the California Department of Insurance.
(d) The Charter Financial Statements were prepared in accordance with GAAP
consistently applied throughout the periods involved, were prepared in
accordance with the books and records of Charter and its Subsidiaries, have been
audited by C&L, and present fairly the financial position of Charter and its
Subsidiaries at the respective dates thereof and the results of operations of
Charter and its Subsidiaries for the respective periods then ended (except that
the quarterly Charter Financial Statements have not been audited and do not
contain full footnote disclosures in accordance with GAAP and are subject to
normal recurring year-end audit adjustments).
(e) The balance sheets of Charter Indemnity and the related statements of
income and cash flows included in the Charter Statutory Statements were prepared
in conformity with Texas SAP consistently applied throughout the periods
involved, were prepared in accordance with the books and records of Charter
Indemnity, have been audited by C&L, and present fairly the statutory financial
position of Charter Indemnity at the respective dates thereof and the statutory
results of operations of Charter Indemnity for the respective periods then
ended. The Charter Statutory Statements complied in all material respects with
all applicable laws and were complete and correct in all material respects when
filed, and no material deficiency has been asserted with respect to any of the
Charter Statutory Statements by the Texas Department of Insurance.
(f) The NCM Financial Statements were prepared in accordance with GAAP
consistently applied throughout the periods involved, were prepared in
accordance with the books and records of NCM, and present fairly the financial
position of NCM at the respective dates thereof and the results of operations of
NCM for the respective periods then ended (except that the quarterly NCM
Financial Statements do not contain full footnote disclosures in accordance with
GAAP and are subject to normal recurring year-end adjustments). No financial
statements of NCM have been audited.
(g) The balance sheets of Northern County and the related statements of
income and cash flows included in the Northern County Statutory Statements were
prepared in conformity with Texas SAP consistently applied throughout
25
the periods involved, were prepared in accordance with the books and records of
Northern County, have been audited by C&L, and present fairly the statutory
financial position of Northern County at the respective dates thereof and the
statutory results of operations of Northern County for the respective periods
then ended. The Northern County Statutory Statements complied in all material
respects with all applicable laws and were complete and correct in all material
respects when filed, and no material deficiency has been asserted with respect
to any of the Northern County Statutory Statements by the Texas Department of
Insurance. Northern County has not prepared any GAAP financial statements
during any of the periods covered by the Northern County Statutory Statements.
3.12 Liabilities. (a) Neither Valley nor any of its Subsidiaries has any
-----------
direct or indirect debt, obligation, loss, damages, deficiency or other
liability of any nature, whether absolute, accrued, contingent or otherwise
("Liability"), required by GAAP or California SAP to be set forth in a financial
statement other than (i) Liabilities set forth in the Valley Financial
Statements and the balance sheets included in the Valley Statutory Statements
and (ii) Liabilities incurred by Valley and its Subsidiaries since March 31,
1995 in the ordinary course of business consistent with past practice.
(b) Neither Charter nor any of its Subsidiaries has any Liability required
by GAAP or Texas SAP to be set forth in a financial statement other than (i)
Liabilities set forth in the Charter Financial Statements and the balance sheets
included in the Charter Statutory Statements and (ii) Liabilities incurred by
Charter and its Subsidiaries since March 31, 1995 in the ordinary course of
business consistent with past practice.
(c) NCM does not have any Liability required by GAAP to be set forth in a
financial statement other than (i) Liabilities set forth in the NCM Financial
Statements and (ii) Liabilities incurred by NCM since March 31, 1995 in the
ordinary course of business consistent with past practice.
(d) Northern County does not have any Liability required by Texas SAP to
be set forth in a financial statement other than (i) Liabilities set forth in
the balance sheets included in the Northern County Statutory Statements and (ii)
Liabilities incurred by Northern County since March 31, 1995 in the ordinary
course of business consistent with past practice.
3.13 Absence of Changes. (a) Since March 31, 1995, there has been no
------------------
material adverse change in the business, operations, assets, Properties,
financial
26
condition, results of operations, Insurance Permits or other material Permits of
(i) Valley and its Subsidiaries, taken as a whole, or (ii) Charter, NCM and
their Subsidiaries (including Northern County), taken as a whole; provided,
--------
however, that, for purposes hereof, insofar as Charter, NCM and their
-------
Subsidiaries (including Northern County) are concerned, any adverse change
therein individually or in the aggregate involving an amount, or having a value,
of at least $1,000,000 shall be deemed to be such a material adverse change (and
any adverse change therein individually and in the aggregate involving an
amount, or having a value, of less than $1,000,000 shall be deemed not to be
such a material adverse change).
(b) Except as set forth in Schedule 3.13 hereto and for the transactions
contemplated hereby, since March 31, 1995, the Companies and their Subsidiaries
(including Northern County) have operated their businesses only in the ordinary
course of business consistent with past practice (except that L-P Premium is an
inactive company and has had no operations in such period or since the date of
its incorporation) and none of the Companies or their Subsidiaries (including
Northern County) has:
(i) amended its certificate or articles of incorporation, by-
laws or other charter or organization document, or merged with or into or
consolidated with any other Person, subdivided or in any way reclassified
any shares of its capital stock or changed or agreed to change in any
manner the rights of its outstanding capital stock;
(ii) issued or sold, or issued or sold any options, warrants,
calls or other rights of any kind to purchase or otherwise receive, or
issued or sold any securities or instruments convertible into or
exchangeable for, or entered into any contract or commitment to issue or
sell, any capital stock or other equity interest or any bonds, debentures,
notes, debt instruments, evidences of indebtedness or other securities of
any kind, including, without limitation, any stock appreciation rights;
(iii) declared, paid or set aside any sum for any dividends or
declared or made any other distributions of any kind (whether in cash,
stock, Property, any combination thereof or otherwise) to its stockholders,
or made any direct or indirect redemption, retirement, purchase or other
acquisition of any shares of its capital stock or other equity interests or
any bonds, debentures, notes, debt instruments, evidences of indebtedness
or other securities of any kind;
27
(iv) incurred any indebtedness for borrowed money or entered into any
commitment to borrow money or guarantee any Liability for borrowed money;
or incurred or assumed any Liability or series of related Liabilities in
excess of $100,000 (other than ordinary course obligations to policyholders
arising pursuant to the terms of insurance policies issued by Valley
Insurance, Charter Indemnity or Northern County in the ordinary course of
business consistent with past practice);
(v) made any change in its accounting or reserving methods or
practices (including, without limitation, any change with respect to
establishment of reserves for unearned premiums, losses (including incurred
but not reported losses) and loss adjustment expenses) or made any change
in depreciation or amortization policies or rates adopted by it;
(vi) made any change in its business, underwriting, billing,
reserving, reinsurance, investment or claims adjustment policies and
practices or any change in any activity which (A) has had the effect of
accelerating the recording and billing of premiums or accounts receivable
or delaying the payment of expenses or the establishment of loss and loss
adjustment expense and other reserves in connection with the business or
any material accounts of any of the Companies, their Subsidiaries or
Northern County or (B) has had the effect of materially altering, modifying
or changing the historic financial or accounting practices or policies of
any of the Companies, their Subsidiaries or Northern County, including
accruals of and reserves for Tax Liabilities;
(vii) suffered any damage, destruction, casualty or loss,
whether or not covered by insurance, affecting any of its Property, the
total amount of which was or will be greater than $100,000;
(viii) allowed the creation of any Lien or Encumbrance on any
tangible or intangible asset or Property, or any sale, transfer,
assignment, lease or abandonment of any interest in any tangible or
intangible asset or Property, other than sales, transfers, assignments and
leases in the ordinary course of business consistent with past practice of
assets of Property having an aggregate fair market value below $100,000;
(ix) entered into any Contract, commitment or transaction
(including, without limitation, any capital expenditure, capital
contribution, capital
28
financing, or purchase, lease, acquisition, sale or disposition of assets
or Properties) which requires or could require payments in excess of
$100,000 with respect to any individual Contract, commitment or transaction
or series of related Contracts, commitments and transactions;
(x) terminated, failed to renew, received any written notice
(that was not subsequently withdrawn) to terminate or fail to renew,
amended, altered, modified, suffered the occurrence of any default under,
failed to perform any Liabilities or obligations under, or waived or
released any rights under, any Contract which is Material;
(xi) forgiven or permitted any cancellation of any claim, debt
or account receivable, other than cancellations in the ordinary course of
business consistent with past practice of any claim, debt or account
receivable in an amount below $100,000;
(xii) directly or indirectly made any payment, discharge or
satisfaction of any Liability in excess of $50,000 before the same became
due in accordance with its terms, other than in the ordinary course of
business consistent with past practice and as reflected or reserved against
in the Financial Statements and the Statutory Statements;
(xiii) accelerated the collection, or sale to any other Person,
of any of its receivables, or delayed the payment of any of its payables,
other than accelerations or delays in the ordinary course of business
consistent with past practice involving amounts below $100,000;
(xiv) except for unrealized gains or losses with respect to
investment assets (not resulting from any write-down, write-off or change
in the basis of valuation thereof), made any revaluation of any assets or
Properties, or write-down or write-off of the value of any assets or
Properties (including, without limitation, any receivables), in an amount
in excess of $100,000;
(xv) made any loan or advance to any Person, other than loans
or advances made in the ordinary course of business consistent with past
practice in an amount below $10,000;
(xvi) made any acquisition of all or any substantial part of the
assets, Properties, securities or business of any other Person;
29
(xvii) except in the ordinary course of business consistent with
past practice, hired any new employees, consultants, agents or other
representatives or entered into any employment or consulting agreements
(other than those terminable without severance, without penalty and without
cause on not more than thirty (30) days notice), or terminated, or made any
change in the employment terms or conditions of, any officers, directors,
employees, consultants, agents or other representatives;
(xviii) except in the ordinary course of business consistent
with past practice, increased or agreed to increase any salary, wages,
bonus, severance, compensation, pension or other benefits payable or to
become payable, or granted any severance or termination payments or
benefits, to any of its current or former officers, directors, employees,
consultants, agents or other representatives;
(xix) entered into any collective bargaining agreement or any
other Contract with any labor union or association representing any
employee, or been subjected to any strike, picket, work stoppage, work
slowdown, labor dispute or other labor trouble;
(xx) considered or adopted a plan of complete or partial
liquidation, dissolution, rehabilitation, restructuring, recapitalization,
demutualization, redomestication or other reorganization; or
(xxi) entered into any Contract, commitment or transaction to do
any of the foregoing.
3.14 Legal Proceedings. (a) Except as set forth in Schedule 3.14
-----------------
hereto, there is no action, suit, claim, proceeding or investigation pending or,
to the Knowledge of the Sellers, threatened against or affecting any of the
Companies or their Subsidiaries (including Northern County), or any of the
directors, officers, employees, assets or Properties of any of them, by or
before any court, other Governmental Entity or arbitrator (other than ordinary
course insurance claims of policyholders arising pursuant to the terms of
insurance policies issued by Valley Insurance, Charter Indemnity or Northern
County in the ordinary course of business consistent with past practice).
Except as set forth in Schedule 3.14, there is no outstanding order, writ,
judgment, injunction, award or decree of any court, other Governmental Entity or
arbitrator against or affecting any of the Companies, their Subsidiaries,
Northern County, or any of the directors, officers, employees, assets or
Properties of any of them.
30
(b) Except as set forth in Schedule 3.14 hereto, there is no action,
suit, claim, proceeding or investigation pending or, to the Knowledge of the
Sellers, threatened against or affecting any of the Sellers by or before any
court, other Governmental Entity or arbitrator which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on the ability
of any of the Sellers to execute and deliver this Agreement, perform its
obligations hereunder or consummate the transactions contemplated hereby.
Except as set forth in Schedule 3.14 hereto, there is no outstanding order,
writ, judgment, injunction or decree of any court, other Governmental Entity or
arbitrator against or affecting any of the Sellers which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on the ability
of any of the Sellers to execute and deliver this Agreement perform its
obligations hereunder or consummate the transactions contemplated hereby.
3.15 Compliance with Laws. Each of the Companies and their
--------------------
Subsidiaries (including Northern County) is in compliance with (a) the terms of
its certificate or articles of incorporation, by-laws or other charter or
organization documents, (b) all applicable laws, statutes, ordinances, rules,
regulations or other legal requirements, whether federal, state, local or
foreign, (c) all applicable orders, writs, judgments, injunctions, awards and
decrees of any court, other Governmental Entity or arbitrator and (d) its
Permits, except in the case of clauses (b) and (c) where the failure to comply
would not, individually or in the aggregate, have a Material Adverse Effect.
None of the Sellers, the Companies or their Subsidiaries (including Northern
County) has received notice of any violation by any of the Companies or their
Subsidiaries (including Northern County) of, or default by any of the Companies
or their Subsidiaries (including Northern County) under, its certificate or
articles of incorporation, by-laws or other charter or organization document,
any law, statute, ordinance, rule, regulation or other legal requirement, any
order, writ, injunction, award or decree of any court, other Governmental Entity
or arbitrator, or any of its Permits, except for such violations or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect.
3.16 Licenses and Permits. Each of the Companies and their
--------------------
Subsidiaries (including Northern County) possesses all Permits necessary for the
ownership of its assets and Properties and the conduct of its businesses.
Schedule 3.16 hereto sets forth a true and complete list of all such Permits of
the Companies and their Subsidiaries (including Northern County), including the
jurisdictions in which any such Persons possess Permits to conduct insurance,
insurance
31
agency or brokerage and premium finance businesses. The Sellers have heretofore
made available to the Purchaser true and complete copies of all such Permits as
currently in effect. All such Permits are valid and in full force and effect.
There is no action, proceeding, inquiry or investigation pending or, to the
Knowledge of the Sellers, threatened for or contemplating the suspension,
modification, limitation, cancellation, revocation or nonrenewal of any such
Permit, and the Sellers have no Knowledge of any existing fact or circumstance
which (with or without notice or lapse of time or both) is reasonably likely to
result in the suspension, modification, limitation, cancellation, revocation or
nonrenewal of any such Permit. To the Knowledge of the Sellers, assuming the
insurance regulatory authorities of the States of California and Texas approve
the transactions contemplated hereby, the consummation of the transactions
contemplated hereby will not result in the suspension, modification,
cancellation, revocation or nonrenewal of any such Permit. None of the
Companies or their Subsidiaries (including Northern County) is engaged in any
insurance, insurance agency or brokerage or premium finance business in any
jurisdiction in which it is not duly authorized or qualified to transact such
business. Except for compliance with periodic renewal procedures, and assuming
the insurance regulatory authorities of the State of California and Texas
approve the transactions contemplated hereby, no approvals or authorizations are
required to permit the Companies, their Subsidiaries and Northern County to
continue its business as presently conducted, following the Closing.
3.17 Regulatory Matters. (a) Except as set forth in Schedule 3.17
------------------
hereto, each of the Companies and their Subsidiaries (including Northern County)
has filed all material reports, statements, registrations, applications, filings
or other documents and submissions required to be filed with, or provided to,
the California Department of Insurance, the Texas Department of Insurance or any
other Governmental Entity. Except as set forth in Schedule 3.17, all such
reports, statements, registrations, applications, filings, documents and
submissions were in compliance in all material respects with all applicable law,
statutes, ordinances, rules or regulations when filed, and no material
deficiencies have been asserted by any Governmental Entity with respect thereto.
Except as set forth in the above-mentioned Schedule 3.14, there is no action,
proceeding, dispute, controversy, inquiry or investigation pending or, to the
Knowledge of the Sellers, threatened by any such Governmental Entity relating to
any of the Companies, their Subsidiaries or Northern County.
(b) Except for regular periodic assessments in the ordinary course of
business and except as set forth in
32
the above-mentioned Schedule 3.14, no claim or assessment is pending nor, to the
Knowledge of the Sellers, threatened against any of the Companies, their
Subsidiaries or Northern County by any state insurance guaranty association in
connection with that association's fund relating to insolvent insurers.
(c) The Sellers have furnished to the Purchaser true and complete
copies of all annual and quarterly statements filed with or submitted to any
state insurance regulatory authority and all reports of examinations (whether
financial, market conduct or other) issued by any state insurance regulatory
authorities in respect of any of the Companies or their Subsidiaries (including
Northern County) covering, in whole or in part, any period on or after January
1, 1990, together with true and complete copies of all written responses
submitted by or on behalf of any of the Sellers, the Companies or their
Affiliates in respect of any such report of examination. In addition, the
Sellers have made, or have caused the Companies and their Subsidiaries and
Northern County to make, available to the Purchaser all files of the Sellers,
the Companies or their Subsidiaries (including Northern County) relating to
correspondence with insurance regulatory authorities and other Governmental
Entities.
3.18 Policy Forms and Rates. Except as set forth in Schedule 3.18,
----------------------
all policies and Contracts of insurance, reinsurance or retrocessional coverage
issued by Valley Insurance, Charter Indemnity, Northern County or any of the
other Companies or their Subsidiaries which is an insurance company (each an
"Insurance Company" and collectively the "Insurance Companies") or which are
being issued by any such Insurance Company are in compliance (and at their
respective dates of issuance were in compliance) with all applicable laws and,
to the extent required under applicable laws, are on forms approved by
applicable insurance regulatory authorities and other Governmental Entities in
the jurisdiction where issued or have been filed with and not objected to by
such regulatory authorities and other Governmental Entities within the period
provided for objection. Any premium rates with respect to policies and
Contracts of insurance, reinsurance or retrocession currently issued by any of
the Insurance Companies which are required to be filed with or approved by
insurance regulatory authorities or other Governmental Entities have been so
filed or approved and premiums charged conform thereto. No outstanding policies
or Contracts of insurance, reinsurance or retrocession issued, underwritten,
reinsured or assumed by any of the Insurance Companies entitles the holder
thereof or any other Person to receive any dividends, distributions or other
benefits based on the revenues or
33
earnings of any of the Companies or their Subsidiaries (including Northern
County).
3.19 Agents and Producers. Schedule 3.19 hereto lists all agents,
--------------------
brokers, producers, managing general agents, underwriting managers and other
Persons through whom any of the Insurance Companies has written or sold any
insurance, reinsurance or retrocessional coverage since January 1, 1994, and who
were paid at least $25,000 in commissions by any of the Companies, their
Subsidiaries or Northern County during the year ended December 31, 1994,
including the total amount of commissions paid to such Persons in such year.
Each of the Companies, their Subsidiaries and Northern County generally enjoys
good relations with the Persons listed on Schedule 3.19 as a whole, and also
generally enjoys good relations with its other insurance agents, brokers,
producers and managing general agents as a whole. To the Knowledge of the
Sellers, all Persons listed on Schedule 3.19 are duly licensed to act as agents,
brokers, producers or managing general agent in the jurisdictions where they
engage in such activities. Except as set forth in Schedule 3.19, none of the
Companies, their Subsidiaries or Northern County is a party to any fronting or
similar arrangement to write or sell insurance or reinsurance for any other
insurer.
3.20 Threats of Cancellation. Except as set forth in Schedule 3.20
-----------------------
hereto, since January 1, 1995, no policyholder or group of policyholders under a
group policy, or agent, broker, producer or other Person writing, selling or
producing insurance, reinsurance or retrocessional coverage, which, individually
or in the aggregate together with other related policyholders, agents, brokers
and producers, accounted for one percent (1%) or more of the aggregate gross
premiums written by any of the Insurance Companies in the year ended December
31, 1994 has terminated or given written notice of termination of its
relationship with any of the Insurance Companies. The Sellers have received no
notice that any such policyholder, group of policyholders, agent, broker,
producer or other such Person will or is reasonably likely to terminate such
relationship as a result of the transactions contemplated by this Agreement.
3.21 Reserves. Schedule 3.21 hereto sets forth the respective
--------
methodologies used by each of the Insurance Companies in establishing reserves
for claims, losses (including, without limitation, incurred but not reported
losses) and loss adjustment expenses (whether allocated or unallocated) as
reflected in each of the Statutory Statements. All such reserves reflected in
such Statutory Statements (a) were computed in accordance with commonly accepted
actuarial standards consistently applied and were
34
fairly stated in accordance with sound actuarial principles, (b) were based on
actuarial assumptions which were in accordance with those called for in relevant
policy and contract provisions, and (c) met the requirements of all applicable
insurance laws, rules and regulations. Such reserves were adequate to cover the
total amount of Liabilities under all outstanding policies and Contracts of
insurance, reinsurance and retrocession as of the dates of such Statutory
Statements (it being understood that no representation or warranty is made
herein to the effect that such reserves will in fact be adequate to cover the
actual amount of such Liabilities that are eventually paid after the date
hereof). Each of the Insurance Companies owns assets that qualify as admitted
assets under applicable insurance laws in an amount at least equal to the sum of
such reserves plus its minimum statutory capital and surplus as required under
applicable insurance laws, rules and regulations.
3.22 Reinsurance. (a) Schedule 3.22 hereto contains a true and
-----------
complete list of all Contracts, treaties or arrangements regarding reinsurance,
coinsurance, excess insurance, retrocession, ceding of insurance or assumption
of insurance ("Reinsurance Contracts") to which any of the Insurance Companies
is a party or by or to which any of them are bound or subject, as each such
Reinsurance Contract may have been amended, modified or supplemented. Each of
the foregoing Reinsurance Contracts is valid and binding in accordance with its
terms, and is in full force and effect. None of the Insurance Companies nor, to
the Knowledge of the Sellers, any other party thereto is in default in any
material respect with respect to any such Reinsurance Contract, nor to the
Knowledge of the Sellers does any condition exist that with notice or lapse of
time or both would constitute such a material default thereunder. Except as set
forth in Schedule 3.22, no such Reinsurance Contract contains any provision
providing that any such other party thereto may terminate, cancel or commute the
same by reason of the transactions contemplated by this Agreement or any other
provision which would be altered or otherwise become applicable by reason of
such transactions, and no party has given notice of termination, cancellation or
commutation of any such Reinsurance Contract or that it intends to terminate,
cancel or commute any such Reinsurance Contract as a result of the transactions
contemplated hereby.
(b) Except as set forth in Schedule 3.22, each of the Insurance
Companies is entitled under applicable law to take full credit in its statutory
financial statements for all amounts recoverable by it pursuant to the
Reinsurance Contracts listed in such Schedule, and all such amounts recoverable
have been properly recorded in the books and records of account of the Insurance
Companies and are
35
properly reflected in the statutory financial statements of the Insurance
Companies (including, without limitation, those included in the Statutory
Statements). The Sellers have no Knowledge that any such amounts are not fully
collectible in due course, and have no Knowledge of any disputes as to
reinsurance coverage under, or any terms or provisions of, any such Reinsurance
Contract. To the Knowledge of the Sellers, the financial condition of any other
party to any such Reinsurance Contract is not impaired to the extent that a
default thereunder is reasonably anticipated.
3.23 Contracts. (a) Schedule 3.23 contains a true and complete list
---------
of all of the following Contracts (excluding insurance policies issued by the
Insurance Companies in the ordinary course of business consistent with past
practice) to which any of the Companies or their Subsidiaries (including
Northern County) is a party or by or to which any of them or their assets or
Properties are or may be bound or subject, as each such Contract may have been
amended, modified or supplemented:
(i) all standard forms of agency and brokerage Contracts and all
material deviations therefrom; and all agency, brokerage or other similar
insurance sales or marketing Contracts which accounted for one percent (1%)
or more of the aggregate gross written premiums of any of the Insurance
Companies for the year ended December 31, 1994 or one percent (1%) or more
of the aggregate revenues of any other Company or Subsidiary thereof in
such year;
(ii) all Material underwriting management, third party
administration, managing general agency, profit-sharing or similar
Contracts (pursuant to which any underwriting, claims settlement or
distribution authority is delegated);
(iii) partnership or joint venture Contracts;
(iv) Contracts containing any covenant or provision limiting the
freedom or ability of any Person to engage in any line of business, engage
in business in any geographical area or compete with any other Person;
(v) Contracts relating to the borrowing of money, or the direct
or indirect guaranty of any obligation for, or Contract to service the
repayment of, borrowed money or any other Liability in respect of
indebtedness for borrowed money of any other Person, including, without
limitation, any Contract relating to
36
(A) the maintenance of compensating balances, (B) any lines of credit, (C)
the advance of any funds to any other Person outside the ordinary course of
business, (D) the payment for Property, products or services which are not
conveyed, delivered or rendered to any such party, (E) any obligation to
keep-well, make-whole or maintain working capital or earnings or perform
similar requirements, or (F) the guaranty of any lease or other similar
periodic payments to be made by any such other Person;
(vi) all lease, sublease, rental or other Contracts under which
any of the Companies, their Subsidiaries or Northern County is a lessor or
lessee of any real Property;
(vii) lease, sublease, rental, licensing, use or similar
Contracts with respect to personal Property used by any of the Companies,
their Subsidiaries or Northern County in the conduct of its business,
operations or affairs and providing for annual rental or use payments in
excess of $25,000;
(viii) Contracts for the purchase or sale of materials, supplies
or equipment (including, without limitation, computer hardware and
software), or the provision of services (including, without limitation,
data processing services), involving annual payments of more than $25,000
or containing any escalation, renegotiation or redetermination provisions,
which Contracts are not terminable at will without liability, premium or
penalty;
(ix) Contracts for the purchase, acquisition, sale or
disposition of any assets or Properties outside the ordinary course of
business or for the grant to any Person (including any of the Companies,
their Subsidiaries and Northern County) of any option or preferential
rights to purchase any assets or Properties;
(x) Contracts relating to the future disposition or acquisition
of any investment or any interest in any Person, and all Contracts for the
purchase of any security outside the ordinary course of business;
(xi) Contracts relating to licenses of trademarks, trade names,
service marks or other similar Property rights;
(xii) employment and other Contracts with any current or former
officer, director, employee,
37
consultant, agent or other representative providing for compensation or
other payments of $50,000 or more per annum (the name, position or capacity
and rate of compensation of each such Person and the expiration date of
each such Contract being accurately set forth in Schedule 3.23);
(xiii) collective bargaining agreements and any other Contracts
with any labor union or association representing any employee;
(xiv) Contracts between or among (A) any of the Companies, their
Subsidiaries and Northern County, on the one hand, and (B) any of the
Sellers or their other Affiliates, or any of the officers or directors of
any of the Sellers, the Companies, their Affiliates and Northern County, on
the other hand ("Affiliate Agreements");
(xv) Contracts under which any of the Companies, their
Subsidiaries or Northern County agrees to indemnify any Person;
(xvi) any powers of attorney granted by any of the Companies,
their Subsidiaries or Northern County to any Person;
(xvii) Contracts pursuant to which there is either a current or
future obligation or right of any of the Companies, their Subsidiaries or
Northern County to make payments in excess of $100,000 in any twelve-month
period (other than Contracts relating to investments of the Insurance
Companies in the ordinary course of business); or
(xviii) any other Contracts which are Material.
(b) The Sellers have heretofore delivered or made available to the
Purchaser true and complete copies of all of the written Contracts required to
be set forth in Schedule 3.23 or in any other Schedule hereto. Each such
Contract is valid and binding in accordance with its terms, and is in full force
and effect. Except as specified in Schedule 3.23, none of the Companies or
their Subsidiaries (including Northern County) is in default in any material
respect with respect to any such Contract, nor does any condition exist that
with notice or lapse of time or both would constitute such a material default
thereunder. Except as specified in Schedule 3.23, to the Knowledge of the
Sellers, no other party to any such Contract is in default in any material
respect with respect to any such Contract. Except as set forth in Schedule
3.23, no such Contract
38
contains any provision providing that any such other party thereto may terminate
or cancel the same by reason of the transactions contemplated by this Agreement
or any other provision which would be altered or otherwise become applicable by
reason of such transactions, and no party has given notice of termination or
cancellation of any such Contract or that it intends to terminate or cancel any
such Contract as a result of the transactions contemplated hereby.
3.24 Property. Schedule 3.24 contains a true and complete list
--------
(designating the relevant owners, lessors and lessees) of (a) all real Property
owned or leased by any of the Companies or their Subsidiaries (including
Northern County) and all buildings and other structures located on such real
Property, and (b) all personal Property owned or leased by any such Person
which, in the case of clause (b) only, is material to any of the Companies or
their Subsidiaries (including Northern County). The Properties owned or leased
by such Persons are sufficient to conduct the business and operations of such
Persons as currently conducted, and the foregoing personal Properties are in
sound operating condition and repair, normal wear and tear excepted. Each of
the Companies and their Subsidiaries (including Northern County) has good and
marketable title to all of their respective assets and Properties, in each case
free and clear of any Lien or Encumbrance except (i) for assets and Properties
which have been disposed of in the ordinary course of business since Xxxxx 00,
0000, (xx) as set forth in Schedule 3.24A and (iii) Liens or Encumbrances which
in the aggregate do not materially detract from the value of the assets or
Properties subject thereto (as carried on the most recent applicable Financial
Statements and financial statements included in the Statutory Statements) or
interfere with the present use of such assets or Properties.
3.25 Intellectual Property. Schedule 3.25 contains a true and
---------------------
complete list of all trade names, trademarks, service marks, logos, copyrights,
patents, similar rights (including registrations and applications to register or
renew the registration of any of the foregoing), trade secrets, computer
software and other similar intellectual property rights ("Intellectual
Property") material to any of the Companies or their Subsidiaries (including
Northern County) in connection with the conduct of its business (excluding
computer software commercially available to the general public and readily
replaceable at costs not material to any of the Companies or their
Subsidiaries), including (a) whether such Intellectual Property is owned or
licensed thereby and (b) which of the foregoing Persons is the owner or licensee
of such Intellectual Property. Each of the Companies and their
39
Subsidiaries (including Northern County) owns, or has registered or valid rights
to use, free and clear of any Lien or Encumbrance, all such Intellectual
Properties which are material to such Persons. None of the Sellers, the
Companies or their Subsidiaries (including Northern County) has received written
notice that, and none of the Sellers have any Knowledge that, any of the
Companies, their Subsidiaries or Northern County is infringing or otherwise in
conflict with the rights of any other Person in respect of Intellectual
Property. There is no Affiliate of the Sellers having a name including the
words "Valley", "Charter", "NCM", "Northern" or "Northern County" or any
derivation or variation thereof, or substantially resembling or confusingly
similar in whole or in part to, the name of any of the Companies or their
Subsidiaries (including Northern County).
3.26 Investments. Schedule 3.26 contains (a) a true and complete
-----------
list of all securities and other investments owned by each of the Companies and
their Subsidiaries (including Northern County) as of the end of the most recent
calendar month, including the date of purchase, book value or amortized cost,
market value and carrying value thereof on the books and records of account of
such Persons as of such date and (b) a written statement of the current
investment programs (which contain the investment policies and guidelines) of
each such Person (the "Investment Guidelines"). Except as set forth in Schedule
3.26, none of the securities and other investments owned by such Persons is in
default in the payment of principal or interest or dividends. All such
securities and other investments substantially comply with the Investment
Guidelines and all insurance laws and regulations of each of the jurisdictions
to which the Companies and their Subsidiaries (including Northern County) are
subject with respect thereto.
3.27 Accounts Receivable. The accounts receivable (including,
-------------------
without limitation, premium receivables) of the Companies and their Subsidiaries
(including Northern County) as reflected in the most recent Financial Statements
and Statutory Statements, to the extent uncollected on the date hereof, and the
accounts receivable reflected on the books and records of account of such
Persons as of the end of the month immediately preceding the date hereof and as
will be reflected at the end of the month immediately preceding the Closing
Date, are and will be valid and existing and represent and will represent monies
due, and each of the Companies and their Subsidiaries (including Northern
County) has established and will establish reserves reasonably considered
adequate for receivables not collectible in the ordinary course of business, and
(subject to the aforesaid reserves) no
40
material amounts are subject to refunds or other adjustments or to any defenses,
rights of setoff, assignments, restrictions, encumbrances or conditions
enforceable by third parties on or affecting them, except for such refunds or
other adjustments arising from policy cancellations in the ordinary course of
business as would not, individually or in the aggregate, have a Material Adverse
Effect.
3.28 Employee Benefit Plans. (a) Schedule 3.28 contains a true and
----------------------
complete list of all Plans. The Sellers have delivered or made available to the
Purchaser, or will deliver or make available to the Purchaser prior to Closing,
true and complete copies of the following documents, as they may have been
amended to the date hereof, embodying or relating to the Plans: (i) each of the
Plans listed in Schedule 3.28, including all amendments thereto, any related
trust agreements, group annuity contracts, insurance policies or other funding
agreements or arrangements; (ii) the most recent determination letter, if any,
as to qualification under section 401(a) or 403(a) of the Code received from the
IRS with respect to each of the Plans; (iii) the actuarial valuation, if any,
prepared with respect to each of the Plans for the three most recent plan years;
(iv) the current summary plan description, if any, for each of the Plans; and
(v) the annual return/report on Form 5500, 5500-C or 5500-R, if any, for each of
the Plans for the three most recent plan years.
(b) Except as shown on Schedule 3.28, since December 31, 1994, none
of the Companies or their Subsidiaries (including Northern County) has adopted,
entered into, or amended any Plan, or made any change in the actuarial methods
or assumptions used in funding any defined benefit pension plan, or made any
change in the assumptions or factors used in determining benefit equivalencies
thereunder, in each case other than as required by the applicable Plan or in
accordance with Contracts expressly identified elsewhere in this Agreement.
(c) Except as set forth in Schedule 3.28: (i) the written terms of
each of the Plans and any related trust agreement, group annuity contract,
insurance policy or other funding arrangement are in compliance with the
applicable requirements, if any, of ERISA and the Code, and each of the Plans
has been administered in compliance with such requirements and in accordance
with its terms and the provisions of any applicable collective bargaining
agreements and the terms of each plan may be enforced by the Companies and
Northern County and any changes in plan terms or benefits are and have been
permitted by law, Contract and plan terms; (ii) all contributions which were due
and payable on or before the Closing Date to the Plans have been made in full
and in proper form, and adequate accruals have
41
been provided for in the financial statements of the Companies and their
Subsidiaries (including Northern County) for all other contributions or amounts
as may be required to be paid to the Plans with respect to the periods which
include the Closing Date or ended prior thereto and in the case of any plan
years including the Closing Date, for the portion of such contributions or
amounts, including contributions or amounts required to provide for the payment
of claims for workers' compensation, weekly indemnity, life, hospital, medical,
surgical and dental benefits which arise, within the meaning of any of the
Plans, prior to the Closing Date and are payable under the terms and conditions
thereof; (iii) none of the Companies or their Subsidiaries (including Northern
County) have made or agreed to make, nor are any of them required (in order to
bring any of the Plans into substantial compliance with the applicable
requirements, if any, of ERISA and the Code) to make, any change in benefits
which would materially increase the costs of maintaining any of the Plans; (iv)
no "disqualified person" or "party in interest" (as defined in section 4975 of
the Code and section 3(14) of ERISA, respectively) with respect to any Plan has
engaged in any "prohibited transaction," as such term is defined in section 4975
of the Code or section 406 of ERISA, for which there was not available an
exemption or which could subject any of the Companies, their Subsidiaries or
Northern County to the tax or penalty imposed under section 4975 of the Code or
Title I of ERISA; (v) each of the Plans for which any of the Companies, their
Subsidiaries or Northern County has claimed a deduction under section 404 of the
Code, as if such Plan were qualified under section 401(a) or 403(a) of the Code,
has received a favorable determination letter from the IRS as to the tax
qualification of such Plan, and such favorable determination has not been
modified, revoked or limited by failure to satisfy any condition thereof or by a
subsequent amendment to, or failure to amend, or by operation of such Plan, and
an application for a determination letter that such Plan satisfies the
requirements of sections 401(a)(4) and 410(b) of the Code has been filed under
the procedures established by IRS Revenue Procedure 93-39, as modified; (vi)
there are no actions, suits, disputes, arbitrations or claims (other than
routine claims for benefits) or legal, administrative or other proceedings or
governmental investigations pending or, to the Knowledge of the Sellers,
threatened against any Plan or against the assets of any Plan; (vii) no Plan and
no employee benefit plan (as that term is defined in section 3(3) of ERISA)
sponsored by a member of a controlled group including any of the Companies or
their Subsidiaries (including Northern County) which is subject to Part III of
Subtitle B of Title I of ERISA or section 412 of the Code has incurred any
"accumulated funding deficiency" (as defined in section 412(a) of the Code),
whether or not waived; (viii) no Plan which is subject to Title IV of ERISA
42
has been terminated and, to the Knowledge of the Sellers, no proceeding has been
initiated to terminate any Plan or to terminate any employee benefit plan (as
that term is defined in section 3(3) of ERISA) sponsored by a member of a
controlled group including any of the Companies or their Subsidiaries (including
Northern County), and each of the Companies and their Subsidiaries (including
Northern County) has paid all premiums (and interest charges and penalties for
late payment), if any, due the PBGC as of the Closing Date with respect to the
Plans and none of the Companies, their Subsidiaries or Northern County has
incurred, or reasonably expects to incur, any liability to the PBGC, to a
"Section 4042 trustee" (within the meaning of section 4042 of ERISA), or any
liability under section 4069 of ERISA, except for required premium payments to
the PBGC; (ix) to the Knowledge of the Sellers, each of the Companies, their
Subsidiaries and Northern County has satisfied any bond coverage requirement of
ERISA and all reporting and disclosure obligations under ERISA and the Code with
respect to each of the Plans and the related trust, group annuity contract,
insurance policy or other funding arrangement; (x) no "reportable event" within
the meaning of section 4043(b)(1)-(9) of ERISA has occurred with respect to any
Plan subject to ERISA (other than those with respect to which the reporting
requirement is waived by rule or regulations promulgated by the PBGC and those
which may result from the transactions contemplated by this Agreement); (xi) no
Plan currently maintained by any of the Companies or their Subsidiaries
(including Northern County), and no other employee benefit plan within the
meaning of section 3(3) of ERISA under which any of the Companies or their
Subsidiaries (including Northern County) has any liabilities or other
obligations is, or was, a "multiple employer plan" within the meaning of section
413(c) of the Code or ERISA or the regulations promulgated thereunder, or a
"multi-employer plan" as defined in section 3(37) of ERISA; (xii) the present
value of all accrued benefits (whether or not vested) under each Plan and each
employee benefit plan (as that term is defined in section 3(3) of ERISA)
sponsored by a member of a controlled group including any of the Sellers, the
Companies or their Subsidiaries (including Northern County) subject to Title IV
of ERISA did not exceed, as of the most recent Plan valuation date, and will not
exceed, as of the Closing Date, the then current fair market value of the assets
of such Plan; (xiii) no Plan is a welfare benefit fund within the meaning of
Code (S) 419(e); and (xiv) the transactions contemplated by this Agreement
(other than Section 5.10) will not increase any benefit or accelerate the
vesting or payment of any benefit. For purposes of determining the present value
of accrued benefits under the Plans and the existence of any "accumulated
funding deficiency" as used in this Section
43
3.27, the actuarial assumptions and methods used under each Plan for the most
recent Plan valuation shall be used.
3.29 Employee Relations. No strike, picket, work stoppage, work
------------------
slowdown, lockout, labor dispute, material labor arbitration or grievance or
other labor trouble, and no application for certification of a collective
bargaining agent, is pending or, to the Knowledge of the Sellers, threatened
against or affecting any of the Companies or their Subsidiaries (including
Northern County). No employees of any of the Companies or their Subsidiaries
(including Northern County) are covered by any collective bargaining agreement
or any other Contract with any labor union or association. Each of the
Companies and their Subsidiaries (including Northern County) has complied in all
material respects with all laws, statutes, ordinances, rules and regulations
relating to the employment and safety of labor, including provisions relating to
wages, hours, benefits, collective bargaining, the payment of social security
and similar Taxes, workers' compensation, civil rights, and all applicable
occupational safety and health acts and regulations.
3.30 Officers, Directors and Key Employees. Schedule 3.30 hereto set
-------------------------------------
forth (a) the name and total compensation (payable by any of the Companies or
their Subsidiaries, including Northern County) of each officer and director of
each of the Companies, their Subsidiaries and Northern County and of each other
employee thereof whose total compensation (so payable) for the year ended
December 31, 1994 equaled or exceeded $50,000, or who will receive compensation
for the fiscal year ending December 31, 1995 equal to or in excess of $50,000,
(b) all bonuses and other incentive compensation received by such Persons since
January 1, 1994, and any accrual for such bonuses and incentive compensation,
and (c) all Contracts or commitments by the Companies, their Subsidiaries and
Northern County to increase the compensation or to modify the conditions or
terms of employment of any of their respective officers or directors, or
employees whose total compensation exceeds $50,000 per annum. To the Knowledge
of the Sellers, none of the officers and directors of any of the Companies,
their Affiliates or Northern County, nor any member of any such Person's
immediately family, is directly or indirectly a party to any Contract or
arrangement with any of the Companies, their Subsidiaries or Northern County
providing for the furnishing of services by, the purchase, acquisition, lease or
rental of Property from, or otherwise requiring payments to any such officer,
director or family member (other than for service in such respective
capacities).
44
3.31 Insurance. Schedule 3.31 contains a true and complete list of
---------
all liability, property and casualty, workers compensation, directors and
officers liability, surety bonds (other than appeal bonds with respect to policy
claims in the ordinary course of business), key man or corporate owned life
insurance, vehicular and other insurance policies and Contracts (including the
insurers, types of coverage, expiration dates, annual premiums, coverage limits,
deductibles or self-insured or net retentions and other material terms thereof,
and the aggregate amounts paid thereunder and any pending claim thereunder in
excess of $50,000) that insure the business, operations, directors, officers,
employees, assets, Properties or affairs of any of the Companies or their
Subsidiaries (including Northern County) or are held by or on behalf of any of
them. All such insurance policies and Contracts are valid and binding in
accordance with their terms and will remain in full force and effect at all
times until the Closing. To the Knowledge of the Sellers, no party to any such
insurance policy or Contract is in default with respect thereto, nor does any
condition exist that with notice or lapse of time or both would constitute such
a default by any party thereunder. To the Knowledge of the Sellers, none of the
Companies or their Subsidiaries (including Northern County) has failed to give
any notice or present any claim under any such insurance policy or Contract in
due or timely fashion or as required thereby in a manner which may jeopardize
full recovery thereunder. To the Knowledge of the Sellers, all such insurance
policies and Contracts provide coverage in amounts and upon terms that are, in
all material respects, reasonable and adequate for Persons having similar
businesses, operations, Properties and locales as those of the Companies and
their Subsidiaries (including Northern County).
3.32 Tax Matters. (a) Skandia U.S. is the "common parent" of an
-----------
"affiliated group" of corporations (as those terms are used in section 1504(a)
of the Code and the Treasury Regulations promulgated under section 1502 of the
Code) that includes each of the Companies and their Subsidiaries (excluding
Northern County) (the "Sellers Group"). The Sellers Group was and is eligible
to file a consolidated federal income Tax Return for each Taxable Period ending
on or before the date hereof for which the statute of limitations for the
assessment of an income Tax has not lapsed; and each of the Companies and their
Subsidiaries (excluding Northern County) will be eligible to file a consolidated
federal income Tax Return with the Sellers Group for their Taxable Period ending
on the Closing Date.
(b) All material Tax Returns required to be filed with respect to the
Companies and their Subsidiaries for all
45
Taxable Periods ending on or before the date hereof have been timely filed
(taking into account extensions of time to file). All such Tax Returns: (i)
were prepared in the manner required by applicable law; (ii) are true, correct,
and complete in all material respects; and (iii) reflect the liability for Taxes
of the Companies and their Subsidiaries for the Taxable Periods comprised in
such Tax Returns. All Taxes shown to be payable on such Tax Returns, and all
assessments of Tax made with respect to such Tax Returns, have been paid when
due. Except as set forth in Schedule 3.32(b), none of the Companies or their
Subsidiaries is required to file or join in the filing of a consolidated,
combined, unitary or group income, franchise, or premium Tax Return except the
consolidated federal income Tax Return of the Sellers Group.
(c) All Taxes of each of the Companies and their Subsidiaries for all
Taxable Periods or portions thereof ending on or before the date of each
Financial Statement and Interim Financial Statement (and, with respect to
Northern County, the Northern County Statutory Statements) have been paid or
adequately provided for in a reserve account, which includes deferred Tax assets
and liabilities (the "Tax Reserve"), set forth on each such statement. Such
Taxes paid or provided for include those Taxes for which a Company or one of its
Subsidiaries may be liable in its own right or as the transferee of the assets
of, or as successor to, any other corporation, association, partnership, joint
venture, or other entity. Schedule 3.32(c) lists, for each of the Companies and
their Subsidiaries, each Tax accrued in the Tax Reserve of the Financial
Statement of such corporation dated December 31, 1994, and, with respect to
Northern County, the Northern County Statutory Statement dated December 31,
1994.
(d) Each of the Companies and their Subsidiaries has timely withheld
from its employees, customers and other payees (and timely paid) all amounts
required to be withheld and paid by the Tax withholding provisions of applicable
federal, state, local and foreign laws, statutes, rules and regulations
(including, without limitation, income, social security, and employment tax
withholding for all types of compensation, and withholding on payments to non-
United States Persons) for all payments made through the date hereof.
(e) Schedule 3.32(e) sets forth, for each Taxable Period ending
during the three-year period beginning January 1, 1992, and ended December 31,
1994, all jurisdictions in which any of the Companies or their Subsidiaries (i)
has filed an income, franchise or premium Tax Return or (ii) has been included
in a consolidated, combined, group, or unitary income, franchise or premium Tax
46
Return. Except as set forth in Schedule 3.32(e), none of the Companies or their
Subsidiaries has waived or extended any statute of limitations for the
assessment or collection of Taxes of any of the Companies or their Subsidiaries,
and no request for any such waiver or extension is currently pending.
(f) To the Knowledge of the Sellers, there is no power of attorney
currently in force granted by or for any of the Companies or their Subsidiaries
with respect to any Taxes.
(g) Except for the Tax Allocation Agreement dated January 1, 1990, as
amended, there is no Contract or agreement under which any of the Companies or
their Subsidiaries has, or may at any time in the future have, an obligation to
assume, share, or contribute to the payment of any portion of a Tax (or any
amount calculated with reference to any portion of a Tax) determined on a
consolidated, combined, group, or unitary basis with respect to an affiliated
group or other group of corporations of which any of the Companies or their
Subsidiaries is or was a member.
(h) None of the Companies or their Subsidiaries is a party to any
contract, agreement, plan, or arrangement, which, individually or collectively
with respect to any Person, could give rise to the payment of any amount that
would not be deductible by any of the Companies or their Subsidiaries by reason
of section 280G of the Code.
(i) To the Knowledge of the Sellers, the Companies and their
Subsidiaries have made all payments of estimated Taxes required to be made under
the Code and any state, local or foreign law. No penalties or other charges are
or will become due with respect to the late filing of any Tax Return of the
Companies or their Subsidiaries required to be filed on or before the Closing
Date.
(j) During the period that they have been members of the Sellers
Group (or affiliated with the Sellers in the case of Northern County), none of
the Companies or their Subsidiaries has received or requested any Tax Ruling or
entered into any Tax Closing Agreement with any taxing authority (foreign or
domestic).
(k) No action, suit, proceeding, investigation, arbitration, audit,
claim or assessment is presently pending or, to the Knowledge of the Sellers,
proposed to be asserted or commenced by any taxing authority with regard to any
Taxes that relate to the Companies or their Subsidiaries for which any of them
may be liable. No issue has arisen in any examination of any of the Companies
or their Subsidiaries by
47
any taxing authority that, if raised with respect to the same or substantially
similar facts arising in any other period not so examined, would result in a
deficiency for such other period, if upheld.
(l) No election under any of sections 108, 168, 338, 441, 472, 1017,
1033 or 4977 of the Code (or any predecessor provisions) is in effect with
respect to any of the Companies or their Subsidiaries. None of the assets of
the Companies or their Subsidiaries is an asset or property that is required to
be treated as being (i) owned by any Person other than the Companies or their
Subsidiaries, as the case may be, 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 Tax Reform Act of 1986, or (ii) tax-
exempt use property within the meaning of section 168(h)(1) of the Code.
(m) Except as set forth on Schedule 3.32(m), (i) none of the
Companies or their Subsidiaries is required to make any adjustment pursuant to
section 481 of the Code (or any similar provision of other laws or regulations)
by reason of a change in accounting method or otherwise, (ii) neither the IRS
nor any other taxing authority has proposed any such adjustment or change in
accounting method which proposal is currently pending, and (iii) none of the
Companies or their Subsidiaries has an application pending with any taxing
authority requesting permission for any change in accounting method that relates
to its business or operations.
(n) Skandia America is not a "foreign person" within the meaning of
section 1445(f)(3) of the Code and Treasury Regulations section 1.1445-
2(b)(2)(i) (or any corresponding provision of state, local or foreign Tax law).
The Purchaser will not be required to deduct or withhold any amount pursuant to
section 1445 of the Code upon the consummation of the transactions contemplated
hereby.
(o) With respect to the Companies and their Subsidiaries, Schedule
3.32(o) contains a list of all countries, states, provinces, cities,
territories, and other jurisdictions (whether foreign or domestic) in which any
of such Persons is required to file a Tax Return or currently is subject to a
Tax. There is no unresolved claim by a taxing authority in any jurisdiction
where any of the Companies or their Subsidiaries does not file Tax Returns that
any of them is or may be subject to taxation by such jurisdiction.
(p) There are no liens for Taxes (other than for Taxes not yet due
and payable) upon the assets of any of the Companies or their Subsidiaries.
48
(q) None of the Companies or their Subsidiaries has disposed of any
property in any transaction currently being accounted for under the installment
method pursuant to section 453 of the Code.
(r) None of the Companies or their Subsidiaries has participated in
or cooperated with an "international boycott" within the meaning of section 999
of the Code. None of the Companies or their Subsidiaries has filed a consent
under section 341(f)(1) of the Code or any comparable provision of state revenue
statutes, or agreed under section 341(f)(3) of the Code to have the provisions
of section 341(f)(2) of the Code applied to the sale of its capital stock.
(s) None of the Companies or their Subsidiaries is a partner or a
member of any partnership or joint venture, or any other entity classified as a
partnership for federal income tax purposes.
(t) Except as provided in Schedule 3.32(t), the Companies and their
Subsidiaries (excluding Northern County) have no deferred intercompany gains or
losses as defined in Treasury Regulations section 1.1502-13 (nor any gains or
losses treated as deferred intercompany gains or losses for income tax
purposes).
(u) Schedule 3.32(u) hereto sets forth the individual tax bases of
the assets of the Companies and their Subsidiaries as of December 31, 1994,
other than the tax bases of the stock of the Companies' Subsidiaries.
(v) Except as set forth in Schedule 3.32(v) none of the Companies or
their Subsidiaries is liable under Treasury Regulations section 1.1502-6 for the
federal income Tax of any corporation other than the members of the Sellers
Group or the members of a consolidated return group for which a Company was the
common parent.
(w) The Companies and their Subsidiaries have (i) timely paid all
guaranty fund assessments that are due, or claimed or asserted by any insurance
regulatory authority to be due, from such entities or (ii) provided for all such
assessments in the Financial Statements or Interim Financial Statements.
3.33 Environmental Matters. To the Knowledge of the Sellers, each of
---------------------
the Companies and their Subsidiaries (including Northern County) is in
compliance with all Environmental Laws, the failure to comply with which could
have a Material Adverse Effect. None of the Sellers, the Companies or their
Subsidiaries (including Northern County) have received notice of any material
violation by any of the
49
Companies or their Subsidiaries (including Northern County) of, or material
default by the same under, any Environmental Law, and the Sellers have no
Knowledge of any existing facts or circumstances that are likely to result in
any such violation or default. There is no action, suit, claim, proceeding or
investigation pending or, to the Knowledge of the Sellers, threatened against
any of the Companies or their Subsidiaries (including Northern County) that
alleges or would allege any violation of any Environmental Law.
3.34 Bank Accounts. Schedule 3.34 contains a true and complete list
-------------
of (a) the names and locations of all banks, trust companies, securities brokers
and other financial institutions at which any of the Companies or their
Subsidiaries (including Northern County) has an account or safe deposit box or
maintains a banking, custodial, trading or other similar relationship, (b) a
true and complete list and description of each such account, box and
relationship and (c) the name of every Person authorized to draw thereon or
having access thereto.
3.35 No Brokers. No broker, finder or investment banker has been
----------
retained or engaged on behalf of any of the Sellers, the Companies, Northern
County or any Affiliate of any of them or is entitled to any brokerage, finder's
or other fee, compensation or commission from any such Person in connection with
the transactions contemplated by this Agreement.
3.36 Full Disclosure. The Sellers, the Companies and the
---------------
Subsidiaries of the Companies (including Northern County) have complied in good
faith with all requests of the Purchaser and its representatives for documents,
papers and information relating to the Companies and their Subsidiaries
(including Northern County) in connection with the transactions contemplated
hereby, and have not knowingly withheld any document, paper or other information
requested by the Purchaser or any of its representatives in connection
therewith. No representation or warranty by any of the Sellers contained in
this Agreement (including the Exhibits and Schedules hereto), or in any
documents or papers furnished to the Purchaser by or on behalf of any of the
Sellers, the Companies or their Subsidiaries (including Northern County)
pursuant to this Agreement, contains any untrue statement of a material fact by
any of them or omits to state a material fact required to be stated therein or
necessary to make the statements contained therein by any of them, in light of
the circumstances under which it was made, not false or misleading.
50
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Sellers as
follows:
4.1 Organization of the Purchaser. The Purchaser is a corporation
-----------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has all requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby.
4.2 Authorization, Validity and Enforceability. The execution,
------------------------------------------
delivery and performance of this Agreement by the Purchaser and the consummation
of the transactions contemplated hereby by the Purchaser have been duly and
validly authorized by all necessary corporate action on the part of the
Purchaser and no other corporate proceeding on the part of the Purchaser is
necessary to authorize the execution, delivery and performance of this Agreement
or the consummation of any of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
the legal, valid and binding obligation of the Purchaser, enforceable against
the Purchaser in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights generally and except as rights to specific enforcement may be
limited by the application of equitable principles (whether such equitable
principles are applied in a proceeding at law or in equity).
4.3 No Conflicts. Assuming the Consents contemplated by clauses (a)
------------
through (c) of Section 4.4 are duly made, obtained or given (as the case may
be), the execution and delivery by the Purchaser of this Agreement, the
performance by the Purchaser of its obligations hereunder and the consummation
of the transactions contemplated hereby do not and will not conflict with,
result in any breach or violation of, constitute a default under (or an event
which with the giving of notice or the lapse of time or both would constitute a
default under), (a) the certificate of incorporation, by-laws or other charter
or organization documents of the Purchaser, (b) any Contract to which the
Purchaser is a party or by or to which it or its assets or Properties may be
bound or subject, (c) any applicable order, writ, judgment, injunction, award,
decree, law, statute, ordinance, rule or regulation or (d) any material Permit
of the Purchaser, other than, in the case of
51
clause (b) only, any conflict, breach, violation or default which would not,
individually or in the aggregate together with all such other conflicts,
breaches, violations or defaults, have a material adverse effect on the ability
of the Purchaser to execute and deliver this Agreement, perform its obligations
hereunder or consummate the transactions contemplated hereby.
4.4 Consents and Approvals. Except (a) as required under the HSR
----------------------
Act, (b) as required under the insurance laws of the States of California,
Oregon and Texas and (c) as set forth in Schedule 4.4 hereto, no Consent of any
Governmental Entity or other Person is necessary to be obtained, made or given
by the Purchaser in connection with the execution and delivery by the Purchaser
of this Agreement, the performance by the Purchaser of its obligations hereunder
and the consummation of the transactions contemplated hereby.
4.5 Legal Proceedings. Except as set forth in Schedule 4.5 hereto,
-----------------
there is no action, suit, claim, proceeding or investigation pending or, to the
Knowledge of the Purchaser, threatened against or affecting the Purchaser by or
before any court, other Governmental Entity or arbitrator which, individually or
in the aggregate, is reasonably likely to have a material adverse effect on the
ability of the Purchaser to execute and deliver this Agreement, perform its
obligations hereunder or consummate the transactions contemplated hereby.
Except as set forth in Schedule 4.5, there is no outstanding order, writ,
judgment, injunction, award or decree of any court, other Governmental Entity or
arbitrator against or affecting the Purchaser which, individually or in the
aggregate, is reasonably likely to have a material adverse effect on the ability
of the Purchaser to execute and deliver this Agreement, perform its obligations
hereunder or consummate the transactions contemplated hereby.
4.6 Investment Intent. The Shares will be acquired by the Purchaser
-----------------
for its own account without a view to a distribution or resale thereof, it being
understood that the Purchaser shall have the right to sell or otherwise dispose
of any of the Shares pursuant to a registration or an exemption therefrom under
the Securities Act of 1933, as amended, and any applicable state securities
laws.
4.7 No Brokers. No broker, finder or investment banker has been
----------
retained or engaged on behalf of the Purchaser or is entitled to any brokerage,
finder's or other fee, compensation or commission from the Purchaser in
connection with the transactions contemplated by this Agreement.
52
ARTICLE V
COVENANTS
5.1 Conduct of Business. (a) From the date hereof to and including
-------------------
the Closing Date, the Sellers will cause the Companies and their Subsidiaries
(including Northern County) to (i) conduct their operations in the ordinary
course of business consistent with past practice and use their best efforts to
preserve intact their business organizations, goodwill and Permits, to keep
available the services of their officers and employees and to maintain existing
relationships with customers, policyholders, managers, agents, brokers,
distributors, suppliers and others having business dealings with any of them,
(ii) maintain insurance coverages and their books, records and accounts in the
usual manner consistent with prior practice, (iii) comply in all material
respects with all laws, statutes, ordinances, rules and regulations of
Governmental Entities applicable to them, (iv) maintain and keep its Properties
and equipment in good repair, working order and condition, normal wear and tear
excepted, and (v) perform in all material respects its obligations under all
Contracts and commitments to which it is a party or by or to which it is bound
or subject.
(b) From the date hereof to and including the Closing Date, the
Sellers will not permit any of the Companies or their Subsidiaries (including
Northern County) to directly or indirectly (i) amend or modify its certificate
or articles of incorporation, by-laws or other charter or organization
documents, (ii) except as expressly required hereby, authorize for issuance,
issue, sell, deliver or agree or commit to issue, sell or deliver (whether
through the issuance or granting of options, warrants, call, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or series
or any other equity interest, or any bonds, debentures, notes, surplus notes,
debt instruments, evidences of indebtedness or other securities of any kind,
including, without limitation, any stock options or stock appreciation rights,
(iii) split, combine or reclassify any shares of its capital stock, or declare,
pay or set aside any sum for any dividend or other distribution (whether in
cash, stock or Property, any combination thereof or otherwise) in respect of its
capital stock, or redeem, purchase or otherwise acquire (or agree to redeem,
purchase or otherwise acquire) any Common Stock or any of its other securities
or any securities of its Subsidiaries, (iv) adopt a plan of complete or partial
liquidation, dissolution, rehabilitation, merger, consolidation, restructuring,
recapitalization, demutualization, redomestication or other reorganization, (v)
make any material change in any financial reporting,
53
Tax, accounting, actuarial or reserving methods or practices or in the
Investment Guidelines, (vi) make any Tax election or settle or compromise any
federal, state, local or foreign income Tax liability either not in accordance
with past practice or which would have a Material Adverse Effect, (vii) purchase
or sell securities or other investments, or invest or reinvest income and
proceeds in respect thereof, other than in accordance with the Investment
Guidelines and applicable law, (viii) contribute to any Plan amounts in excess
of normal and ordinary contributions, determined in the case of a defined
benefit plan in accordance with the actuarial assumptions and methodologies used
in the most recent formal annual actuarial valuation of the plan, or accelerate
any contribution or payment to or on behalf of any Plan, or accelerate any
payment to be made under any Plan, or adopt a new Plan, amend any Plan or permit
any Plan to enter into any Contract, insurance arrangement or funding obligation
to increase present or future benefits or the present or future cost of
providing benefits, or (ix) without the prior written consent of the Purchaser,
take any of the other actions described in Section 3.13(b) or take any action,
or omit to do any act, that individually or in the aggregate would, or would be
reasonably likely to, result in (A) any of the representations and warranties
set forth in Article III of this Agreement not being true in all material
respects (or, in the case of any such representations or warranties which are
qualified as to materiality, true in all respects) or (B) any of the conditions
set forth in Articles VI and VII not being satisfied or (C) any breach of any
covenant or obligation hereunder or (D) a Material Adverse Effect.
5.2 Access to Information; Consultation; Confidentiality. (a) From
----------------------------------------------------
the date hereof until the Closing, the Sellers will, and will cause each of the
Companies, their Subsidiaries and Northern County to, (i) allow the Purchaser
and its officers, employees, counsel, accountants, consultants and other
authorized representatives ("Representatives") to have reasonable access to the
books, records, Contracts, facilities, management and personnel of the
Companies, their Subsidiaries and Northern County, (ii) furnish promptly to the
Purchaser and its Representatives all information and documents concerning the
Companies, their Subsidiaries and Northern County as the Purchaser or its
Representatives may reasonably request, and (iii) cause the respective officers,
employees and Representatives of the Sellers, the Companies, their Subsidiaries
and Northern County to cooperate in good faith with the Purchaser and its
Representatives in connection with all such access. In addition, the Sellers
will, and will cause each of the Companies and their Subsidiaries (including
Northern County) to, use reasonable efforts to consult with the Purchaser a
reasonable period of
54
time prior to entering into any transaction or arrangement or taking any action
which is Material, in a manner which will allow the Purchaser a reasonable
opportunity to evaluate and present its views to the Sellers regarding such
transaction, arrangement or action (it being understood that the Sellers, the
Companies and their Subsidiaries shall have the sole authority to make all final
decisions with respect thereto prior to the Closing). No investigation or
review by the Purchaser or any of its Representatives shall affect or be deemed
to modify any of the representations, warranties, covenants or agreements of the
Sellers under this Agreement or otherwise; it being understood that,
notwithstanding any right of the Purchaser fully to investigate the affairs of
the Companies and their Subsidiaries (including Northern County), and
notwithstanding any knowledge of facts determined or determinable by the
Purchaser pursuant to any such investigation or right of investigation, the
Purchaser has the right to rely fully upon the representations, warranties,
covenants and agreements of the Sellers contained in this Agreement.
(b) All information and documents provided under this Section 5.2
shall be kept confidential by the Purchaser and its Representatives, unless any
such information or documents (i) is or becomes generally available to the
public (other than as a result of a disclosure by the Purchaser or any of its
Representatives), (ii) was already known by or available on a non-confidential
basis to the Purchaser prior to being furnished by or on behalf of the Sellers,
the Companies and their Subsidiaries (including Northern County) hereunder, or
(iii) is or becomes available to the Purchaser from a third party not bound by
any contractual obligation to the Sellers, the Companies and their Subsidiaries
(including Northern County) to keep such information confidential. In the event
of the termination of this Agreement pursuant to Section 9.1, the Purchaser
will, upon the request of the Sellers, promptly deliver to the Sellers all
written information and documents provided under Section 5.2(a) in the
possession of the Purchaser or any of its personnel, including all copies,
reproductions, summaries, analyses and extracts thereof or based thereon.
5.3 Cooperation and Reasonable Best Efforts. Subject to the terms
---------------------------------------
and conditions hereof, (a) each of the parties hereto shall cooperate with each
other, and the Sellers will cause the Companies, their Subsidiaries and Northern
County to cooperate with the Purchaser, in connection with consummating the
transactions contemplated by this Agreement and the Exhibits hereto (including,
without limitation, the extension of the Northern County Management Contract as
contemplated by Section 6.10 and the subrogation rights of Skandia Ltd contained
in section 4 of
55
the Northern County Guaranty), and (b) each of the parties hereto agrees to, and
the Sellers will cause each of the Companies and their Subsidiaries (including
Northern County), to, use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement (including, without
limitation, the foregoing extension of the Northern County Management Contract).
For purposes of this Section 5.3, the covenant of the parties to use their
"reasonable best efforts" shall not require any party to (i) incur any
unreasonable expenses, (ii) agree to materially limit the conduct of its
business or (iii) divest itself of any material assets or Properties, in each
case except as otherwise contemplated hereunder.
5.4 Consents and Approvals. As soon as practicable after the
----------------------
execution of this Agreement, each of the parties hereto shall, and the Sellers
shall cause the Companies and their Subsidiaries (including Northern County to,
use its reasonable best efforts to obtain any necessary Consents of, and make
any filing with or give any notice to, any Governmental Entities and other
Persons (including, without limitation, the insurance regulatory authorities of
the States of California, Oregon and Texas and, pursuant to the HSR Act, the
Federal Trade Commission and the United States Department of Justice) as are
required to be obtained, made or given by such party to consummate the
transactions contemplated by this Agreement. The parties hereto shall cooperate
with one another in exchanging such information and reasonable assistance as may
be required by any such Governmental Entity or as any other party may request in
connection with the foregoing.
5.5 Notification of Certain Matters. Each of the Sellers, on the one
-------------------------------
hand, and the Purchaser, on the other hand, shall give prompt notice to the
other of (a) the occurrence or nonoccurrence of any event, the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
of the Sellers or the Purchaser, respectively, contained in this Agreement to be
untrue or inaccurate in any material respect (or, in the case of any
representation or warranty which is qualified as to materiality, untrue or
inaccurate in any respect) at or prior to the Closing and (b) any material
failure of any of the Sellers or the Purchaser, respectively, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
-------- -------
this Section 5.5 shall not cure such failure or limit or otherwise affect the
remedies available hereunder to the parties receiving such notice. Without
limiting the
56
generality of the foregoing, from the date hereof through the Closing Date, each
of the Sellers, on the one hand, and the Purchaser, on the other hand, shall
promptly notify the other of any action, suit, claim, proceeding or
investigation of the type required to be described in Schedule 3.14 or Schedule
4.5 hereof that is commenced or, to its Knowledge, threatened, and of any
request for additional information or documentary materials by any Governmental
Entity in connection with the transactions contemplated hereby.
5.6 Public Announcements. Each party hereto shall notify the other
--------------------
parties hereto prior to issuing any press release or making any public statement
pertaining to this Agreement or the transactions contemplated hereby, and shall
not issue any such press release or make any such public statement without
obtaining the reasonable approval of the other parties prior thereto, except
that each party will in any event have the right to issue any such release or
statement upon advice of its counsel that such issuance is required in order to
comply with applicable law or stock exchange rules.
5.7 No Solicitation. The Sellers, the Companies, their Affiliates
---------------
(including Northern County) and their respective officers, directors, employees,
Representatives and agents shall immediately cease any existing discussions,
communications or negotiations, if any, with any Persons ("Prior Bidders"),
other than the Purchaser and its Representatives, conducted heretofore with
respect to any direct or indirect acquisition of all or any material portion of
the assets or Properties of, or any capital stock (including, without
limitation, the Shares) or other equity interest in, any of the Companies and
their Subsidiaries (including Northern County) or any business combination with
any of the Companies, their Subsidiaries or Northern County (whether by merger,
consolidation, bulk or assumption reinsurance, demutualization or otherwise) or
any other transaction inconsistent with consummation of, or similar in whole or
in part to, the transactions contemplated herein, including, without limitation,
any transaction involving a change of control of any of the Sellers (any of the
foregoing, an "Alternative Transaction"), and will not, directly or indirectly,
solicit, encourage, participate in or initiate discussions or negotiations with,
or provide any information or documents to, or otherwise cooperate in any way
with, any Person (other than the Purchaser and its Representatives) concerning
any Alternative Transaction. The Sellers shall notify the Purchaser orally and
in writing if any proposal relating to an Alternative Transaction (an
"Alternative Transaction Proposal") is received by any of them, the Companies,
their Affiliates or Northern County, or if any inquiry is received by, any
information is requested
57
from, or any discussions or negotiations are sought to be initiated or continued
with, any of the foregoing Persons in connection with an Alternative Transaction
or Alternative Transaction Proposal, immediately after receipt of such
Alternative Transaction Proposal, inquiry, request or other communication. Such
written notification shall include the identity of the Person making such
Alternative Transaction Proposal, inquiry, request or other communication and
such other information with respect thereto as is reasonably necessary to
apprise the Purchaser of the precise nature of such inquiry, request or other
communication, or the material terms of such Alternative Transaction Proposal,
and all other material information relating thereto. The Sellers shall use
their best efforts to cause all confidential or proprietary materials relating
to any of the Companies and their Subsidiaries (including Northern County)
previously furnished to Prior Bidders or other Persons in connection with an
Alternative Transaction to be promptly returned to the Sellers. At the Closing,
the Sellers shall assign to the Purchaser the non-exclusive right to enforce the
rights of the Sellers and their Affiliates under any and all confidentiality
agreements entered into with Prior Bidders and other prospective acquirors of
any of the Companies or their Subsidiaries, upon terms and pursuant to an
instrument in form and substance reasonably satisfactory to the Purchaser.
5.8 Interim Financial Statements and Investment Reports. (a) From
---------------------------------------------------
the date hereof until the Closing Date, as soon as practicable after they become
available (and in any event within forty-five (45) days after the end of each
calendar quarter or, in the case of monthly financial statements, within twenty
(20) days after the end of each calendar month), the Sellers shall deliver to
the Purchaser true and complete copies of:
(i) (A) the consolidated balance sheet of Valley and its subsidiaries
as at the end of each quarterly period ending on or after the date hereof,
and the related consolidated statements of income, changes in stockholder's
equity and cash flows of Valley and its subsidiaries for such quarterly
period and the portion of the fiscal year through the end of such quarterly
period, (B) the consolidated balance sheet of Charter and its subsidiaries
as at the end of each quarterly period ending on or after the date hereof,
and the related consolidated statements of operations, changes in
stockholder's equity and cash flows of Charter and its subsidiaries for
such quarterly period and the portion of the fiscal year through the end of
such quarterly period, (C) the balance sheet of NCM as at the end of each
quarterly period ending on or after the date hereof, and the related
statements of income,
58
changes in stockholder's equity and cash flows of NCM for such quarterly
period and the portion of the fiscal year through the end of such quarterly
period, (D) the balance sheet of Northern County as at the end of each
quarterly period ending on or after the date hereof, and the related
statements of operations and cash flows of Northern County for such
quarterly period and the portion of the fiscal year through the end of such
quarterly period and (E) to the extent prepared, all monthly GAAP financial
statements of the Companies or their Subsidiaries, including Northern
County (collectively, the "Interim Financial Statements"); and
(ii) (A) the statutory quarterly statement of each of the Insurance
Companies as filed with the insurance regulatory authorities in their
respective states of domicile for each quarterly period ending on or after
the date hereof, including in each case all exhibits, interrogatories,
notes and schedules thereto and any actuarial opinion, affirmation or
certification filed in connection therewith and (B) to the extent prepared,
all monthly statutory-basis financial statements of the Insurance Companies
(collectively, the "Interim Statutory Statements").
In addition, during such period, if and when available, the Sellers shall
deliver to the Purchaser true and complete copies of any budgets, business plans
and financial projections, or modifications thereof, prepared by or on behalf of
any of the Sellers or their Affiliates relating to any of the Companies and
their Subsidiaries (including Northern County).
(b) The Interim Financial Statements will each be prepared in
accordance with GAAP consistently applied throughout the periods involved (and
on a basis consistent with the relevant Financial Statements) and in accordance
with the books and records of the Company and its Subsidiaries (if any) to which
it relates, and will present fairly the financial position of such Company and
its Subsidiaries (if any) as at the respective dates thereof and the results of
operations of such Company and its Subsidiaries (if any) for the respective
periods then ended, except that quarterly and monthly Interim Financial
Statements will not be required to contain full footnote disclosures in
accordance with GAAP and may be subject to normal recurring year-end audit
adjustments. The financial statements included in the Interim Statutory
Statements will each be prepared in conformity with California SAP or Texas SAP,
as appropriate, consistently applied throughout the periods involved (and on a
basis consistent with the financial statements included in the Statutory
Statements) and in accordance with the books and records of the
59
Insurance Company to which they relate, and will present fairly the statutory
financial position of such Insurance Company as at the respective dates thereof
and the statutory results of operations of such Insurance Company for the
respective periods then ended. The Interim Statutory Statements will comply in
all material respects with all applicable laws and will be complete and correct
in all material respects when filed.
(c) From the date hereof until the Closing Date, as soon as
practicable after it becomes available (and in any event within twenty (20) days
after the end of each calendar month, the Sellers shall deliver to the Purchaser
a true and complete list of all purchases, acquisitions, sales and dispositions
during the previous month of investments owned by any of the Companies, their
Subsidiaries and Northern County, and all investments and reinvestments of
income and proceeds in respect thereof, including the dates of such transactions
and the book value or amortized cost, market value and carrying value thereof on
the books and records of account of such Persons as of the end of the previous
month.
5.9 Tax Matters. (a) The Sellers shall, or shall cause the
-----------
Companies and/or their Subsidiaries to, prepare and file all Tax Returns of or
including the Companies and/or their Subsidiaries that are required to be filed
(with extensions) on or before the Closing Date. All such Tax Returns will be
made and filed by the Sellers, the Companies, and their Subsidiaries in a manner
consistent with the prior practice of the Sellers, the Companies and their
Subsidiaries. The Sellers shall prevent the Companies and their Subsidiaries
from making any new tax elections after the execution of this Agreement and
through the Closing Date without obtaining the prior written consent of the
Purchaser.
(b) The Sellers shall file a consolidated federal income Tax Return
which includes, and reports the operations from, the Companies and their
Subsidiaries (other than Northern County) for the period beginning January 1,
1995, and ending on the Closing Date, subject to the prior review of the
Purchaser with respect to the proposed treatment of any item in such Tax Return
that affects the Purchaser's liability under Section 8.3(b) of this Agreement.
The Companies and their Subsidiaries (other than Northern County) shall
cooperate with the Sellers and the Purchaser to the extent reasonably necessary
to prepare such Tax Return. The Purchaser shall, or shall cause the Companies
and/or their Subsidiaries to, file a federal income Tax Return which includes,
and reports the operations from, the Companies and their Subsidiaries (other
than Northern County) for the Taxable Period beginning on the day
60
following the Closing Date. All Tax Returns referred to in this Section 5.9(b)
shall be prepared by the Purchaser and the Sellers in accordance with Treasury
Regulations section 1.1502-76 based on a closing of the books of the Companies
and their Subsidiaries as of the end of the Closing Date.
(c) Other than the Tax Returns covered by section 5.9(b), all Tax
Returns of or including the Companies and their Subsidiaries with respect to Tax
Periods beginning after December 31, 1994 shall be prepared and filed by the
Purchaser, the Companies or their Subsidiaries, as the case may be, provided,
--------
however, that the filing of any such Tax Return that includes or covers some or
-------
all of the period from January 1, 1995 through the Closing Date shall be subject
to the prior review of the Sellers with respect to the proposed treatment of any
item in such Tax Returns that affects the Sellers' liability under Section
8.3(a).
(d) If either party shall disagree with or object to the proposed
treatment of any item in a Tax Return that such party is entitled to review in
accordance with Sections 5.9(b) or (c) of this Agreement, then the parties shall
negotiate in good faith to resolve such disagreement or objection. If such
matter cannot be resolved by mutual agreement prior to the due date (with
extensions) for the filing of the pertinent Tax Return, then the Tax Return
shall be filed on a timely basis by the party responsible for the filing of such
Tax Return in accordance with Sections 5.9(b) or (c) of this Agreement, and the
other party shall be entitled to submit the matter to the Tax Settlement
Auditor, whose resolution of such matter shall be binding on both parties.
(e) As soon as reasonably practicable after the Closing Date (with
respect to the 338 Tax Cost, after the final resolution of the Tax Schedules
pursuant to Section 5.10(c)), the Purchaser shall compute the Short Period Tax,
the Estimated Tax Payments, and the 338 Tax Cost. The Purchaser's computation
of these items shall be subject to the review and consent of Skandia America,
which consent shall not be unreasonably withheld. If Skandia America reasonably
disputes the Purchaser's computation of the Short Period Tax, the Estimated Tax
Payments, or the 338 Tax Cost (if any), then Skandia America and the Purchaser
shall negotiate in good faith to resolve the dispute. Any dispute that cannot
be resolved by Skandia America and the Purchaser shall be resolved by the Tax
Settlement Auditor, whose resolution of such dispute shall be binding on both
parties. The amounts of the Short Period Tax, the Estimated Tax Payments, and
the 338 Tax Cost (if any) as finally determined in accordance with this Section
5.9(e) shall be final and binding on the parties and shall not be revised after
such final determination.
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(f) The Purchaser shall pay to Skandia America the excess, if any, of
the Short Period Tax over the Estimated Tax Payments or Skandia America shall
pay to the Purchaser the excess, if any, of the Estimated Tax Payments over the
Short Period Tax. The payment required by this Section 5.9(f) shall be paid
within five (5) Business Days after the first to occur of (i) Skandia America's
consent to the Purchaser's computation of the Short Period Tax and the Estimated
Tax Payments and (ii) the final resolution by the Tax Settlement Auditor of any
dispute between the parties concerning the computation of the Short Period Tax
and/or the Estimated Tax Payments.
(g) If the Purchaser and Skandia U.S. make the 338 Elections, the
Purchaser shall pay to Skandia America the 338 Tax Cost (if any) within five (5)
Business Days after the filing of the 338 Elections with the IRS.
(h) The payments required by Sections 5.9(f) and (g), if any, shall
also include such additional amounts as required to "gross-up" such payments for
any tax liability resulting from such payments being treated as a purchase price
adjustment or otherwise as taxable income to Skandia America. The determination
of the taxability of such payments shall be made by the parties prior to any
payment and any dispute shall be resolved by the Tax Settlement Auditor.
(i) All transfer, sales, use, recordation, stamp or similar Taxes
required to be paid in connection with the transactions contemplated herein,
including the sale and delivery to the Purchaser of the Shares, shall be paid by
the party upon whom such Taxes are imposed by any law or regulation. At the
Closing, the Sellers shall cause all appropriate stock transfer tax stamps to be
affixed to the certificate or certificates representing the Shares so sold and
delivered.
(j) To the extent available in the records of the Sellers, the
Companies, or their Subsidiaries, true and complete copies of all Tax Returns
and all schedules thereto (or relevant portions thereof) filed by, on behalf of,
or with respect to each of the Companies and their Subsidiaries with any taxing
authority for all Taxable Periods ending on or before the Closing Date, and all
written communications relating to all such Tax Returns (including revenue
agent's reports, settlement agreements, compromise agreements, and the like),
will be made available to the Purchaser by the Sellers for inspection upon its
request. After the Closing Date, the Purchaser, on the one hand, and the
Sellers, on the other hand, each shall make available (or cause their respective
Affiliates to make available) to the other, as reasonably requested, and to any
taxing authority, all
62
information, records or documents relating to Taxes of the Companies and their
Subsidiaries for all periods ending on or before the Closing Date, and shall
preserve (or shall cause the Companies and their Subsidiaries to preserve) all
such information, records and documents in accordance with their generally
applicable record retention policy.
(k) The Tax Allocation Agreement dated January 1, 1990, as amended,
shall terminate with respect to each Company and its Subsidiaries as of the
Closing Date, and each Company and its Subsidiaries shall thereafter be released
from any liability thereunder.
(l) After the Closing, the Seller and the Purchaser shall provide,
and shall cause each of their Affiliates to provide, to the other party and its
Affiliates such information (including access to books and records) relating to
the Companies, their Subsidiaries, and the Sellers as the Sellers or the
Purchaser may reasonably request in order to permit (i) the filing of any Tax
Return, amended Tax Return, or claim for refund; (ii) the determination of any
Tax liability, right to the refund of Taxes, or the amount of any foreign Tax
credit; (iii) the determination of the amount of any payment required under this
Agreement; and (iv) the conduct or defense of any audit, claim, suit, or other
proceeding in respect of Taxes. The Purchaser and the Sellers shall cooperate
with each other in the conduct of any audit, claim, suit, or other proceeding
involving the Companies and/or their Subsidiaries for any Tax purpose.
(m) If a Company or one of its Subsidiaries incurs a net operating
loss that may be carried back and absorbed in a Tax Return of the Sellers Group,
then an election under section 172(b)(2) of the Code shall be made by or on
behalf of such Company or Subsidiary with respect to such net operating loss.
If, for a Taxable Period beginning after the Closing Date, a Company or a
Subsidiary of a Company incurs a capital loss, a general business credit, or
other item (excluding a net operating loss) that must be carried back to a
consolidated federal income Tax Return of the Sellers Group for a Taxable Period
ending before or including the Closing Date, Skandia U.S. shall amend such prior
period Tax Return and claim a refund or credit of Tax attributable to the
carryback of such item. If the claim for the overpayment of Tax attributable to
the carryback item is allowed to the Sellers Group, the Sellers shall pay the
amount of the reduction in Tax for the prior period (plus interest, if
applicable), less the reasonable costs and expenses incurred by Skandia U.S. in
connection with the preparation of such amended Tax Return, to the Company or
the Subsidiary, as the case may be. In the event that (i) the Sellers Group
incurs a net operating loss, a
63
capital loss, a general business credit, or other item during a Taxable Period
beginning after the Closing Date; (ii) such item could or should be carried back
to a Taxable Period with respect to which a Company or a Subsidiary previously
received a payment pursuant to this Section 5.9(l); (iii) such net operating
loss, capital loss, general business credit, or other item incurred by the
Sellers Group is reasonably expected to expire unused by any member corporation
of the Sellers Group; and (iv) such item would not have expired unused to a
member of the Sellers Group in the absence of the reduction of Tax attributable
to the previous carryback adjustment attributable to a Company or one of its
Subsidiaries, then such Company or Subsidiary shall pay to the Sellers the
amount of the reduction of Tax for such carryback year that would have been
credited or refunded to the Sellers Group in the absence of the carryback from
the Company or the Subsidiary. The amount of the payment provided by the
immediately preceding sentence shall not exceed the amount of the payment
previously made by the Sellers to the Company or Subsidiary with respect to such
carryback Taxable Period.
(n) The Sellers shall not make or allow to be made an election under
Treasury Regulations section 1.1502-20(g) with respect to the net operating loss
of any Company or one or more of its Subsidiaries.
(o) The Sellers shall deliver to the Purchaser all appropriate
additions and revisions to the Schedules described in Section 3.32 as soon as
reasonably practicable after such additions or revisions are required to be
disclosed under the terms of this Agreement.
(p) For purposes of this Section 5.9, prior to and including the
Closing Date, the Companies and their Subsidiaries shall be considered
Affiliates of the Sellers, and after the Closing Date the Companies and their
Subsidiaries shall be considered Affiliates of the Purchaser. The Purchaser or
the Sellers, as the case may be, shall cause their respective Affiliates to
perform any covenant, agreement, obligation or other duty imposed on such
Affiliates under the terms of this Section 5.9.
5.10 338 Elections. (a) The Purchaser shall have the right, but not
-------------
the obligation, to require Skandia U.S. to join with the Purchaser in making the
elections provided for in section 338(g) and section 338(h)(10) of the Code and
the Treasury Regulations promulgated thereunder (the "338 Elections") with
respect to the Purchaser's acquisition of the Valley Shares from Skandia
America. If the Purchaser causes Skandia U.S. to make the 338 Elections, the
Purchaser and Skandia U.S. (and their Affiliates), at the option of the
Purchaser, shall make such other similar
64
elections as may be necessary for state and local income Tax purposes provided
that such elections achieve substantially the same result to the Purchaser and
Skandia U.S. as the 338 Elections achieve for federal income Tax purposes and,
for purposes of this Agreement, the term "338 Elections" shall be deemed to
include any such state and local income Tax elections.
(b) The Purchaser shall have the right under Section 5.10(a) to make
the 338 Elections with respect to Valley and with respect to any one or more of
its Subsidiaries with no obligation to make the 338 Elections with respect to
any other Valley Subsidiaries (if applicable).
(c) If the Purchaser preliminarily elects to cause Skandia U.S. to
make the 338 Elections, within five (5) months of the Closing Date the Purchaser
shall provide to Skandia U.S. schedules setting forth (A) the tax basis of each
of the assets of Valley and its Subsidiaries as of the Closing Date (determined
without giving effect to any 338 Elections), (B) the "Adjusted Grossed Up Basis"
of the assets of Valley and its Subsidiaries (as such term is defined in
Treasury Regulations section 1.338(b)-1(c)), (C) the fair market value of the
assets of Valley and its Subsidiaries as of the Closing Date, (D) an allocation
of the Adjusted Grossed Up Basis among such assets pursuant to Treasury
Regulations section 1.338(b)-2T and, if applicable, section 1.338(b)-3T, (E) the
acquisition costs incurred by the Purchaser in connection with the acquisition
of the Valley Shares hereunder as defined in Treasury Regulations section
1.338(h)(10)-1(f)(4) ("Purchaser's Costs"), (F) the modified ADSP (MADSP) (as
such term is defined in Treasury Regulations section 1.338(h)(10)-1(f)), and (G)
an allocation of the MADSP among the assets of Valley and its Subsidiaries in
accordance with Treasury Regulations section 1.338(h)(10)-(1)(f) (the schedules
set forth in clauses (A)-(G), the "Tax Schedules"). The Purchaser shall provide
to Skandia U.S. any information reasonably requested by Skandia U.S. promptly
after receipt of the Tax Schedules to substantiate the Tax Schedules and the
computation thereof. Within twenty (20) Business days after receipt of the Tax
Schedules, Skandia U.S. shall notify the Purchaser in writing of any objections
to the Purchaser's computation of the Tax Schedules, including a detailed
explanation of the basis for such objections. If Skandia U.S. fails to so
object in writing to the Tax Schedules within such time, the Tax Schedules shall
be deemed to be final and binding upon the parties with respect to the making of
the 338 Elections. If Skandia U.S. makes such a timely written objection to the
Tax Schedules, however, then the Purchaser and Skandia U.S. shall negotiate in
good faith to resolve any matters in dispute with respect thereto. If the
Purchaser and Xxxxxxx
00
U.S. are unable to resolve any such matters in dispute within ten (10) Business
Days after the Purchaser's receipt of Skandia U.S.'s written objections to the
Tax Schedules, then the Purchaser and Skandia U.S. shall submit any such
disputed matters to the Tax Settlement Auditor for resolution and the Tax
Settlement Auditor shall resolve any disputed items as soon as practicable after
being retained to resolve such disputed items. The Tax Schedules will become
final and binding upon agreement by Skandia U.S. and the Purchaser or upon the
resolution of any disputes by the Tax Settlement Auditor. Upon the final
resolution of the 338 Tax Cost, the Purchaser may elect to have the 338
elections filed, or not filed, in the sole discretion of Purchaser. If the
Purchaser elects to file the 338 Elections, the Purchaser and Skandia U.S. shall
act in accordance with Tax Schedules in the preparation and filing of all the
Tax Returns and in the course of any tax audit, appeal, or litigation relating
thereto, and each party shall notify the other as soon as reasonably practicable
of any audit adjustment or proposed audit adjustment by any taxing authority
that affects the Tax Schedules.
(d) The Purchaser and Skandia U.S. shall comply fully with all filing
and other requirements necessary to effectuate the 338 Elections on a timely
basis and shall cooperate in good faith with each other in the preparation and
timely filing of all Tax Returns required to be filed in connection with the
making of the 338 Elections, including the exchange of information and the joint
preparation, execution, and filing of Form 8023-A (including related schedules).
(e) All items of income, gain, loss, and deduction recognized by the
Companies and their Subsidiaries as a result of, and in accordance with, the
deemed asset sale resulting from the making of the 338 Elections shall be
included in the consolidated federal income Tax Return of the Sellers Group for
its Taxable Period that includes the Closing Date. The consolidated federal
income Tax liability resulting from the 338 Elections shall be timely paid by
the Sellers subject to the Purchaser's obligation to pay Skandia America for the
338 Tax Cost.
5.11 Employee Benefit Matters.
------------------------------
(a) Retirement Plan.
---------------
(i) Employees shall cease to accrue any benefits under the Seller's
Retirement Plan as of the Closing Date or as soon thereafter as may be practical
in accordance with ERISA.
66
(ii) The Seller's Retirement Plan shall be amended to: (i) provide
that Employees are fully vested in their accrued benefits attributable to their
service prior to the Closing Date; (ii) preserve any rights to early retirement
benefits for which such an Employee is eligible as of the Closing Date; and
(iii) provide for (subject to the provisions of the Code and ERISA) distribution
of benefits accrued through the date described in (i) above.
(iii) The Sellers shall retain all liabilities, including but not
limited to liabilities for benefits, unfunded liabilities and contributions,
under the Seller's Retirement Plan, whether incurred before, on, or after the
Closing Date, except liabilities for contributions with respect to normal costs
accrued or reserved for in the ordinary course of business on the balance sheets
contained in the Interim Financial Statements as of the end of the calendar
month immediately preceding the Closing Date in accordance with GAAP and
actuarial methodologies applied consistently with the practices of the Companies
and their Subsidiaries immediately prior to the date of this Agreement.
(b) Defined Contribution Plan.
-------------------------
(i) The Seller's Defined Contribution Plan shall be amended to
provide that contributions thereto in respect of Employees shall cease as of the
Closing Date and any rights to contributions on or after the Closing Date shall
be determined in accordance with the terms of the Successor Plan. No later than
January 1, 1996, the Successor Plan shall include as participants the Employees
(other than any terminated non-vested participants) who were participants in the
Seller's Defined Contribution Plan immediately prior to the Closing Date. Other
Employees shall become participants in the Successor Plan in accordance with its
terms.
(ii) As soon as practicable following December 31, 1995, the Defined
Contribution Plan shall be amended (A) to fully vest the Employees in their
Account Balances and (B) to distribute all account balances of Employees
(including, as applicable, all employee and employer contributions, all earnings
attributable to such contributions and participant promissory notes), such
balances to be determined as of the first day of the month preceding the
distribution, and such distribution to be made in accordance with procedures
prescribed by the Code, ERISA, and the applicable Plan document(s).
(iii) The Sellers shall retain all liabilities, including but not
limited to liabilities for benefits, unfunded liabilities and contributions,
under the Seller's Defined Contribution Plan, whether incurred before, on, or
67
after the Closing Date, except liabilities for contributions with respect to
costs accrued or reserved for in the ordinary course of business on the balance
sheets contained in the Interim Financial Statements as of the end of the
calendar month immediately preceding the Closing Date in accordance with GAAP
applied consistently with the practices of the Companies and their Subsidiaries
immediately prior to the date of this Agreement.
(c) Bonuses. The Companies shall retain all obligations and
-------
liabilities for bonuses and incentive payments in connection with the relevant
Employee Benefit Plans in effect immediately prior to the Closing Date and shall
cause the payment of such bonuses or incentive payments, if any, to be made in
accordance with the terms of such Employee Benefit Plans.
(d) Welfare Benefits. With respect to each Employee, the Purchaser
----------------
shall cause the Companies to assume the obligation and liability for claims by
any such individual (or his or her covered dependent or COBRA beneficiary) under
employee welfare benefit plans (within the meaning of section 3(1) of ERISA) of
the Companies, whether incurred prior to, on or after the Closing Date;
provided, however, that the Sellers shall cooperate in good faith with the
-------- -------
Purchaser to arrange for payment of any claims incurred prior to the Closing
Date to the extent such claims are covered under any insurance policy held by
the Sellers for the purpose of payment of such claims. The Purchaser shall
cause the Companies to provide for the waiver under the Purchaser's welfare
benefit plans covering Employees on and after the Closing Date of any conditions
to coverage with respect to preexisting medical conditions and shall credit
Employees with any amounts paid prior to the Closing Date in order to satisfy
applicable deductible amounts and co-payment minimums under the corresponding
welfare plans of the Purchaser.
(e) Credit. The Purchaser shall cause the Companies and their
------
Subsidiaries to credit for all purposes under any benefit plans covering the
Employees, including the Successor Plan, the service credited through the
Closing Date under the Parent's or the Seller's benefits plans as if such
service had been rendered to the Purchaser.
(f) WARN. The Purchaser shall cause the Companies and their
----
Subsidiaries to comply with the requirements of WARN and any similar state
notification laws with respect to any loss of employment concerning the Affected
Employees that takes place on or after the Closing Date.
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(g) Third-Party Rights. No provision of this Section 5.10 shall
------------------
create any third-party beneficiary rights in any employee or former employee
(including any beneficiary or dependent thereof) of the Sellers, any of their
Affiliates, or the Companies in respect of continued employment (or resumed
employment) for any specified period of any nature or kind whatsoever, and no
provision of this Section 5.10 shall create such third-party beneficiary rights
in any such persons in respect of any benefits that may be provided, directly or
indirectly, under any employee benefit plan or arrangement, including the
current Plans.
5.12 Insurance Coverage. The Sellers will cooperate with the
------------------
Purchaser in obtaining, at the expense of the Purchaser or the Companies,
continued or replacement insurance coverage, effective as of the Closing Date,
providing coverage to each of the Companies, their Subsidiaries and Northern
County comparable to that provided by the policies and Contracts listed on
Schedule 3.31 which policies and Contracts are not issued directly to any of the
Companies and their Subsidiaries (including Northern County). Without limiting
the generality of the foregoing, the Sellers will provide such information, and
cause the Companies, their Subsidiaries and Northern County to complete and
execute such applications, as may be reasonably necessary to arrange for such
continuation or replacement insurance coverage.
5.13 Debt Restructuring. The indebtedness of Charter and its
------------------
Subsidiaries will be restructured as follows:
(a) Prior to the maturity or due date thereof, and before the
Closing, the Sellers will cause the Monarch Note to be replaced with a
promissory note (in form and substance reasonably satisfactory to the Purchaser)
made by Monarch to Skandia Capital AB (publ), (i) in a principal amount no
greater than the principal amount currently outstanding under the Monarch Note,
(ii) providing for payment of such principal in installments not to exceed
$2,400,000, on the first day of each calendar month from January 1, 1995 until
payment in full (no later than June 1, 1996), (iii) bearing interest, payable
monthly together with the foregoing principal installments, on unpaid principal
amounts at an interest rate equal to 6.5% per annum, and (iv) except for any
security for repayment as contemplated in paragraph (c) below, otherwise on
terms no less favorable to Monarch than those contained in the currently
outstanding Monarch Note.
(b) Prior to the maturity or due date thereof, and before the
Closing, the Sellers will cause the Charter Agency/Xxxxxxx Note to be amended
(pursuant to an instrument
69
in form and substance reasonably satisfactory to the Purchaser) to (i) extend
its maturity date to September 30, 1996, (ii) provide for payment of $1,000,000
in outstanding principal thereunder on each of July 1, August 1 and September 1,
1996, and (iii) permit any principal outstanding thereunder at maturity to be
discharged by execution and delivery of the New Charter Agency Note as provided
below. The Charter Agency/Xxxxxxx Note shall otherwise continue in effect, if
at all, upon terms identical to those currently in effect.
(c) Prior to the Closing, the Sellers shall be entitled to cause
Monarch to advance its available funds to Charter Agency, to the extent
necessary for Charter Agency to pay any premiums or other amounts due under the
100% quota share reinsurance agreements of Northern County which are currently
in effect. Any such advance (i) shall be made in consideration for the grant by
Charter Agency to Monarch of a security interest in an equal amount of direct
xxxx premium receivables owned by Charter Agency relating to policies and
contracts of insurance written prior to the Closing Date, as security for the
repayment of such advance, and (ii) shall be repayable in its original
principal amount, without interest or premium thereon, as and when such direct
xxxx premium receivables are collected by Charter Agency. Each of the foregoing
advances and security arrangements shall be undertaken pursuant to written
instruments in form and substance reasonably satisfactory to the Purchaser.
In addition, prior to the Closing, the Sellers shall be entitled (A)
to cause Monarch to pledge outstanding premium finance notes (evidencing premium
finance obligations of Northern County policyholders to Monarch) and all other
funds owned by Monarch and the proceeds and products thereof (including amounts
collected thereunder), and (B) to cause Charter Agency to pledge any and all
direct xxxx premium receivables owned by Charter Agency relating to policies and
contracts of insurance written prior to the Closing Date (other than any of the
same pledged as security for the repayment of advances by Monarch to Charter
Agency as contemplated in the immediately preceding paragraph) and the proceeds
and products thereof (including amounts collected thereunder), in the case of
each of clauses (A) and (B) as security for payment of the following obligations
(in order of priority):
(1) commissions, fees, claims payments and other amounts payable to
or by Charter Agency in its capacity as a managing general agent of
Northern County, while the Monarch Note, Charter Agency/Xxxxxxx Note or New
Charter Agency Note remain outstanding (it being understood that those
commissions and fees will be
70
sufficient, without any additional capital infusions, to pay the reasonably
anticipated operating costs of Charter Agency);
(2) any premiums or other amounts due under the 100% quota share
reinsurance agreements of Northern County which are currently in effect;
(3) any amounts due under the Monarch Note; and
(4) any amounts due under the Charter Agency/Xxxxxxx Note or the New
Charter Agency Note.
The foregoing pledge arrangements shall be undertaken pursuant to written
instruments in form and substance reasonably satisfactory to the Purchaser. The
Sellers shall bear the fees and expenses of any pledge or collateral agent
related to any such pledge arrangements. The Purchaser shall be entitled to any
premium finance collectibles, direct xxxx premium receivables, funds and
proceeds therefrom remaining after satisfaction in full of the Monarch Note, the
Charter Agency/Xxxxxxx Note and the New Charter Agency Note.
(d) Prior to the Closing, the Sellers will not permit (i) any demand
to be made for payment of principal, prepayment of interest or payment of any
other amounts pursuant to the Monarch Note or any of the Charter Intercompany
Notes, (ii) any payment or other default to occur under the Monarch Note or any
of the Charter Intercompany Notes, (iii) except as contemplated above in this
Section 5.13, any amendment, modification, cancellation or change to the terms
of any of the Charter Intercompany Notes or (iv) any repayment or refunding by
Northern County or Charter Agency of the SARC Reinsurance Advance. Prior to the
Closing, the Sellers will cause Monarch, Charter Agency and Charter to make all
payments of principal and interest as and when due under the Monarch Note and
each of the Charter Intercompany Notes (to which it is an obligor or party),
respectively, and not to make any other payments in respect thereof.
(e) At the Closing: (i) the Sellers will cause Charter and Charter
Agency to pay to the respective holders of each of the Charter Intercompany
Notes (to which it is an obligor or party) other than the Charter/Xxxxxxx Note,
all accrued and unpaid interest thereunder through the Closing Date; and (ii) in
consideration for the Purchaser's purchase of the NCM Shares (including the
Northern County Management Contract), (A) the Sellers will cause SARC to
transfer its rights and interests in and to the SARC Reinsurance Advance to
Skandia America, which in turn shall (and Skandia U.S. shall cause Skandia
America to) make a capital contribution
71
to Charter of such rights and interests in and to the SARC Reinsurance Advance,
and (B) Skandia America will, and Skandia U.S. will cause Skandia America to,
make a capital contribution to Charter of the Charter Upstream Note, in the case
of each of clauses (A) and (B) without repayment of amounts owed thereon and
pursuant to documentation in form and substance reasonably satisfactory to the
Purchaser.
(f) The Purchaser will cause the Charter Agency/Xxxxxxx Note to
remain in full force and effect from the Closing until September 30, 1996. In
the event that all principal amounts outstanding under the Charter
Agency/Xxxxxxx Note are not satisfied pursuant to the above arrangements on or
before September 30, 1996, the Purchaser will cause Charter Agency to execute
and deliver to Xxxxxxx a new promissory note, substantially in the form attached
hereto as Exhibit A (a "New Charter Agency Note"), pursuant to which Charter
Agency will repay to Xxxxxxx a third of such remaining principal amount on
September 30 of each of 1997, 1998 and 1999. Any New Charter Agency Note shall
be deemed to discharge the Charter Agency/Xxxxxxx Note, and shall be guaranteed
by Charter pursuant to an instrument of guaranty in form and substance
reasonably satisfactory to the Sellers. There shall be no recourse to any
Person, or the assets or Property of any Person, other than Charter Agency and
Charter in respect of any New Charter Agency Note. From the Closing until
satisfaction in full of the Monarch Note, the Charter Agency/Xxxxxxx Note and
any New Charter Agency Note, the Purchaser will cause each of Monarch and
Charter Agency not to declare, pay or set aside any sum for any dividend or
other distribution, or redeem, purchase or otherwise acquire any capital stock
or other securities of Monarch or Charter Agency.
(g) The Sellers hereby represent and warrant to, and covenant and
agree with, the Purchaser that, after giving effect to the Closing, none of the
Companies or their Subsidiaries (including Northern County) will have any
Liability or indebtedness for borrowed or advanced money or funds, other than
pursuant to the Charter Surplus Note, the Northern County Surplus Note, the
Monarch Note and the Charter Agency/Xxxxxxx Note as described herein.
5.14 Intercompany Accounts; Affiliate Agreements. Except as set
-------------------------------------------
forth in Schedule 5.14 hereto and as provided in Section 5.13, the Sellers shall
cause all intercompany accounts receivable or payable (whether or not currently
due or payable) between (a) any of the Companies or their Subsidiaries
(including Northern County), on the one hand, and (b) any of the Sellers or
their other Affiliates, or any of the officers or directors of any of the
Sellers, the Companies, their Affiliates and Northern County, on the other hand,
to be settled in full (without any premium or
72
penalty, and at values mutually agreed upon by the parties hereto) at or prior
to the Closing. Except as set forth in Schedule 5.14 hereto and as provided in
Section 5.13, all Affiliate Agreements shall be terminated without any further
Liability or obligation thereunder effective at or prior to the Closing, upon
terms and pursuant to instruments reasonably satisfactory to the Purchaser, and
the Sellers will cause each of its Affiliates party to any Affiliate Agreements
(other than the Companies, their Subsidiaries (including Northern County)) to
execute and deliver to the Purchaser, the Companies and their Subsidiaries
(including Northern County) a Release and Discharge with respect thereto, dated
as of the Closing Date and substantially in the form attached hereto as Exhibit
D.
5.15 Corporate Records. At or prior to the Closing, the Sellers
-----------------
shall deliver to the appropriate Companies all minute books, stock ledgers,
stock books, cancelled or unused stock certificates, corporate seals, books,
records, files, policy forms, stationery, software, data, documents and
Properties of the Companies, their Subsidiaries (including Northern County) that
are in the possession of any of the Sellers or their other Affiliates.
5.16 Instruments. Any monies, checks, drafts, money orders, postal
-----------
notes and other instruments received after the Closing by any of the Sellers or
their Affiliates (other than the Companies and their Subsidiaries) in payment of
any amounts due any of the Companies or their Subsidiaries shall be forthwith
after receipt by any of the Sellers or such Affiliates thereof be transferred
and delivered by the Sellers and such Affiliates to the appropriate Company or
Subsidiary thereof, and any such instruments made payable to any of the Sellers
or such Affiliates when so delivered shall bear all endorsements required to
effectuate the transfer of the same to the appropriate Company or Subsidiary
thereof.
5.17 Trade Names. At all times following the Closing, (a) the
-----------
Sellers will not, and will not permit their Affiliates to, use any name which
includes the words "Valley", "Charter", "NCM" or "Northern County" or any
derivations or variations thereof, or any name substantially resembling or
confusingly similar in whole or in part to the name of any of the Companies and
their Subsidiaries (including Northern County), in connection with any trade or
business activity and (b) the Purchaser will not, and will not permit their
Affiliates to, use any name which includes the word "Skandia" or any derivations
or variations thereof, or any name substantially resembling or confusingly
similar in whole or in part to the name "Skandia" or the existing Skandia logo
with the likeness of the umbrella, in connection with any trade or business
activity.
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5.18 Reinsurance Arrangements. (a) The Sellers will cause the 100%
------------------------
quota share reinsurance agreements of Northern County which are currently in
effect to remain in full force and effect at all times until the later of
December 31, 1995 or the Closing Date, without any amendment, modification,
--
cancellation or other change thereto which is not approved in writing by the
Purchaser. Between the date hereof and the Closing Date, the Sellers will not
permit Northern County or Charter Indemnity to enter into any reinsurance,
coinsurance, retrocession, underwriting management, managing general agency or
similar Contracts.
(b) At the Closing, the Sellers will cause Skandia Ltd to (i)
unconditionally guarantee the full performance of all liabilities and
obligations of each reinsurer and assuming company, and indemnify Northern
County for the full collectibility of all amounts recoverable, under all
reinsurance agreements of Northern County (whether in force or in run-off)
relating to periods on or prior to the later of December 31, 1995 or the Closing
--
Date (or, in the case of non-affiliate reinsurance, on or prior to the Closing
Date), pursuant to a Guaranty Agreement dated as of the Closing Date
substantially in the form of Exhibit B (the "Northern County Guaranty"), and
(ii) provide excess of loss reinsurance coverage to Charter Indemnity with
respect to insurance business issued, underwritten, assumed or renewed by
Charter Indemnity on or before the Closing Date, pursuant to an Aggregate Excess
of Loss Reinsurance Agreement dated as of the Closing Date substantially in the
form of Exhibit C (the "Charter Indemnity Reinsurance Agreement").
(c) The Sellers hereby represent and warrant to, and covenant and
agree with, the Purchaser that (i) after giving effect to the Closing and the
execution of the Northern County Guaranty, Northern County will not retain for
its own account any net liability under any insurance or reinsurance issued,
underwritten, assumed or renewed by it on or prior to the Closing Date and (ii)
after giving effect to the Closing and the execution of the Charter Indemnity
Reinsurance Agreement, subject to the limitations expressly set forth therein,
Charter Indemnity will not have any net liability in respect of any insurance,
reinsurance or retrocession business issued, underwritten, assumed or renewed by
it on or prior to the Closing Date (other than for losses and loss adjustment
expenses incurred prior to the Closing Date, in an aggregate amount not to
exceed the reserves for such losses and loss adjustment expenses held by Charter
Indemnity, and certified to the Purchaser as such, on the Closing Date).
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5.19 Non-Solicitation Covenant. At all times from the Closing Date
-------------------------
until the third anniversary thereof, (a) the Sellers will not, and will cause
their Affiliates not to, directly or indirectly seek or solicit to employ or
engage any officer or employee of any of the Companies and their Subsidiaries
(including Northern County) who is such on the Closing Date and (b) the
Purchaser will not, and will cause their Affiliates not to, directly or
indirectly solicit to employ or engage any officer or employee of any of the
Sellers and their Subsidiaries (other than the Companies and their Subsidiaries,
including Northern County) who is such on the Closing Date.
ARTICLE VI
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Shares at the Closing
shall be subject to the satisfaction of the following conditions at or prior to
the Closing:
6.1 Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Sellers contained in this Agreement which are qualified as
to materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and, except for any such representations and warranties which are
made as of and relate solely to a particular date other than the date hereof, as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date. Each of the Sellers shall have performed and complied in all
material respects with all covenants and agreements required to be performed or
complied with by such parties hereunder on or prior to the Closing Date. In
addition, the representations and warranties of Skandia Ltd contained in the
Parent Support Agreement referred to in the recitals to this Agreement shall be
true and correct in all material respects as of the date hereof and as of the
Closing Date with the same force and effect as though made on and as of the
Closing Date.
6.2 Consents. All Consents required in connection with the purchase
--------
and sale of the Shares and the consummation of the Closing (other than non-
material Consents from third parties which are not Governmental Entities) shall
have been duly obtained, made or given and shall be in full force and effect,
without the imposition upon the Purchaser, the Companies and their Subsidiaries
(including Northern County) of any material condition, restriction or required
undertaking (other than conditions,
75
restrictions or undertakings customarily required by insurance regulatory
authorities in transactions such as the Purchaser's acquisition of the Shares)
not expressly set forth in applicable statutes and regulations. Without
limiting the generality of the foregoing, the Purchaser shall have obtained the
approvals of the insurance regulatory authorities of the States of California,
Oregon and Texas for the consummation of the transactions contemplated hereby
(including the purchase of the Shares) under all applicable laws and
regulations, and such approvals shall be valid and in full force and effect, and
no such approval shall impose upon the Purchaser or any of the Companies and
their Subsidiaries (including Northern County) any conditions or restrictions
which adversely impair the ability of any of them to conduct their business in
substantially the same manner as such business is now being conducted.
6.3 No Injunction or Illegality. No injunction, order, decree or
---------------------------
judgment shall have been issued by any Governmental Entity of competent
jurisdiction and be in effect, and no statute, rule or regulation shall have
been enacted or promulgated by any Governmental Entity and be in effect, which
in each case restrains or prohibits the consummation of the purchase and sale of
the Shares.
6.4 HSR Act. The required waiting period applicable to the purchase
-------
and sale of the Shares under the HSR Act shall have expired or been earlier
terminated.
6.5 Opinions of Counsel to the Sellers. The Purchaser shall have
----------------------------------
received opinions, each dated the Closing Date, of Cadwalader, Xxxxxxxxxx &
Xxxx, special counsel to the Sellers, and such other counsel of the Sellers
and/or their Affiliates as may be reasonably acceptable to the Purchaser,
substantially to the effect of the matters set forth in Exhibit E hereto.
6.6 Certificates. The Sellers shall each have delivered to the
------------
Purchaser (a) a copy of the resolutions adopted by its Board of Directors and
(if applicable) stockholders, certified by the corporate Secretaries thereof,
authorizing and approving this Agreement and the transactions contemplated
hereby (including, without limitation, the sale of the Shares), and (b) a
certificate dated the Closing Date, signed by an executive officer thereof,
certifying as to the fulfillment of the conditions set forth in Section 6.1 and
6.11. Skandia Ltd shall have delivered to the Purchaser (i) a copy of any
corporate resolutions or action on the part of Skandia Ltd, certified by the
corporate secretary thereof, relating to the transactions contemplated hereby
and (ii) a certificate dated the Closing Date, signed by an executive officer
76
thereof, certifying as to the fulfillment of the conditions set forth in the
last sentence of Section 6.1. In addition, the Sellers and Skandia Ltd shall
have furnished the Purchaser with such other certificates and closing documents
as the Purchaser may reasonably request and as are customary for transactions
such as those contemplated hereby.
6.7 Resignation of Directors. All of the directors of the Companies
------------------------
and their Subsidiaries (including Northern County) who are designated by the
Purchaser for replacement, shall have delivered to the Purchaser their written
resignations as directors of such companies, and those Persons designated by the
Purchaser as nominees to the Board of Directors of Northern County shall have
been duly elected or appointed to the Northern County Board, in each case
effective upon the Closing.
6.8 Debt Restructuring. The intercompany debt restructuring
------------------
contemplated by Section 5.13 shall have been consummated in accordance with the
terms thereof.
6.9 Reinsurance Arrangements. Skandia Ltd shall have duly executed
------------------------
and delivered the Northern County Guaranty and the Charter Indemnity Reinsurance
Agreement.
6.10 Northern County Management Contract. The Northern County
-----------------------------------
Management Contract shall have been extended for a period of twenty (20) years,
upon terms no less favorable to NCM than those in effect on the date of this
Agreement (and upon terms otherwise satisfactory to the Purchaser).
6.11 Ratings. None of the claims-paying ability ratings assigned by
-------
A.M. Best & Co. or Standard & Poor's Corporation to any of the Insurance
Companies, as in effect on the date of this Agreement, shall have been lowered,
on or prior to the Closing Date.
6.12 Transfer Taxes. The Sellers shall have caused all appropriate
--------------
stock transfer Tax stamps to be affixed to the certificate or certificates
representing the Shares so sold and delivered.
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS
OF THE SELLERS TO CLOSE
The obligations of Skandia America to sell the Shares at the Closing
shall be subject to the satisfaction of the following conditions at or prior to
the Closing:
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7.1 Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Purchaser contained in this Agreement which are qualified
as to materiality shall be true and correct in all respects, and those not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and, except for any such representations and warranties which are
made as of and relate solely to a particular date other than the date hereof, as
of the Closing Date with the same force and effect as though made on and as of
the Closing Date. The Purchaser shall have performed and complied in all
material respects with all covenants and agreements required to be performed or
complied with by the Purchaser hereunder on or prior to the Closing Date.
7.2 Consents. All Consents required in connection with the purchase
--------
and sale of the Shares and the consummation of the Closing (other than non-
material Consents from third parties which are not Governmental Entities) shall
have been duly obtained, made or given and shall be in full force and effect,
without the imposition upon the Sellers of any material condition, restriction
or required undertaking (other than conditions, restrictions or undertakings
customarily required by insurance regulatory authorities in transactions such as
the Purchaser's acquisition of the Shares) not expressly set forth in applicable
statutes and regulations.
7.3 No Injunction or Illegality. No injunction, order, decree or
---------------------------
judgment shall have been issued by any Governmental Entity of competent
jurisdiction and be in effect, and no statute, rule or regulation shall have
been enacted or promulgated by any Governmental Entity and be in effect, which
in each case restrains or prohibits the consummation of the purchase and sale of
the Shares.
7.4 HSR Act. The required waiting period applicable to the purchase
-------
and sale of the Shares under the HSR Act shall have expired or been earlier
terminated.
7.5 Opinion of Counsel to the Purchaser. The Sellers shall have
-----------------------------------
received the opinion of Xxxxx Xxxxxxxxxx, special counsel to the Purchaser,
dated the Closing Date, substantially in the form attached hereto as Exhibit F.
7.6 Certificates. The Purchaser shall have delivered to the Sellers
------------
(a) a copy of the resolutions adopted by its Board of Directors, certified by
the corporate Secretary thereof, authorizing and approving this Agreement and
the transactions contemplated hereby (including, without limitation, the
purchase of the Shares), and (b) a certificate dated the Closing Date, signed by
an
78
executive officer thereof, certifying as to the fulfillment of the conditions
set forth in Section 7.1.
ARTICLE VIII
INDEMNIFICATION
8.1 Survival. The representations and warranties of the parties
--------
contained in this Agreement, or in any Schedule or Exhibit hereto or any
certificate delivered pursuant hereto, shall survive until the third anniversary
of the Closing Date; provided, however, that (a) the representations and
-------- -------
warranties set forth in the second and third sentence of Section 3.21
(Reserves), insofar as they relate to the loss and loss adjustment expense
reserves of Northern County and Charter Indemnity, shall expire upon the
Closing, (b) the representations and warranties set forth in Sections 3.28
(Employee Benefit Plans) and 3.32 (Tax Matters) with respect to any Tax shall
survive to the extent set forth in Section 8.4(a), (c) the other representations
and warranties set forth in Section 3.28 (Employee Benefit Plans) shall expire
upon expiration of the applicable statute of limitations, and (d) the
representations and warranties set forth in Sections 3.6(b) (Subsidiaries) (last
two sentences only), 3.7(a) (Capitalization), 3.8 (Title to Shares), 3.9(c) and
(e) (Northern County; Charter Indemnity), 3.24 (Properties) (last sentence
only), and 5.18(c) (Reinsurance Arrangements) shall survive forever.
8.2 Indemnification. (a) The Sellers hereby jointly and severally
---------------
agree to indemnify, defend and hold harmless the Purchaser (and its directors,
officers, Affiliates, successors and assigns) from and against any losses,
Liabilities, damages, costs or expenses, including, without limitation,
interest, penalties and reasonable fees and expenses of counsel (collectively,
"Losses"), asserted during the survival periods referred to in Section 8.1,
based upon, arising out of or otherwise resulting from (i) any inaccuracy in any
representation or breach of any warranty of any of the Sellers (without regard
to any qualification as to materiality or Material Adverse Effect) contained in
this Agreement or in any Schedule hereto or certificate delivered pursuant
hereto or (ii) the breach or nonfulfillment of any covenant, agreement or other
obligation of any of the Sellers under this Agreement; provided, however, that,
-------- -------
except with respect to any breach of any representation or warranty set forth in
Sections 3.6(b) (Subsidiaries) (last two sentences only), 3.7(a)
(Capitalization), 3.8 (Title to Shares) and 3.9(e) (Charter Indemnity), (A) the
Purchaser (and its directors, officers, Affiliates, successors and assigns)
shall be entitled to indemnification under this Section 8.2 only when the
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aggregate amount of all such Losses exceeds $1,000,000 (the "Basket Amount"), in
which event the Purchaser (and its directors, officers, Affiliates, successors
and assigns) shall be entitled to indemnification for all such Losses (including
the Basket Amount), and (B) the Purchaser (and its directors, officers,
Affiliates, successors and assigns) shall only be entitled to indemnification
under this Section 8.2 for fees and expenses of the counsel of one such Person
(determined by the Purchaser) arising from Third Party Claims.
(b) The Purchaser hereby agrees to indemnify, defend and hold
harmless the Sellers (and their directors, officers, Affiliates, successors and
assigns) from and against any Losses asserted during the survival periods
referred to in Section 8.1, based upon, arising out of or otherwise resulting
from (i) any inaccuracy in any representation or breach of any warranty of the
Purchaser (without regard to any qualification as to materiality) contained in
this Agreement or in any Schedule hereto or certificate delivered pursuant
hereto or (ii) the breach or nonfulfillment of any covenant, agreement or other
obligation of the Purchaser under this Agreement; provided, however, that (A)
-------- -------
the Sellers (and their directors, officers, Affiliates, successors and assigns)
shall be entitled to indemnification under this Section 8.2 only when the
aggregate amount of all such Losses exceeds the Basket Amount, in which event
the Sellers shall be entitled to indemnification for all such Losses (including
the Basket Amount), and (B) the Sellers (and their directors, officers,
Affiliates, successors and assigns) shall only be entitled to indemnification
under this Section 8.2 for fees and expenses of the counsel of one such Person
(determined by the Sellers) arising from Third Party Claims.
(c) Promptly after the receipt by any party hereto of notice of any
third party claim or the commencement of any third party action, suit or
proceeding subject to indemnification hereunder (a "Third Party Claim"), such
party (the "Indemnified Party") will, if a claim in respect thereto is to be
made against any party obligated to provide indemnification hereunder (the
"Indemnifying Party"), give such Indemnifying Party reasonable written notice of
such Third Party Claim; provided, however, that the failure to provide such
-------- -------
notice will not relieve the Indemnifying Party of any of its obligations, or
impair the right of the Indemnified Party to indemnification, pursuant to this
Section 8.2 unless, and only to the extent that, such failure materially
prejudices the Indemnifying Party's opportunity to defend or compromise the
Third Party Claim. Such Indemnifying Party shall have the right, at its option,
to defend at its own expense and by its own counsel any Third Party Claim,
provided that (i)
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the Indemnifying Party acknowledges in writing (at the time it elects to assume
such defense) its obligation under this Section 8.2 to indemnify the Indemnified
Party with respect to such Third Party Claim, (ii) such counsel is reasonably
satisfactory to the Indemnified Party, (iii) the Indemnified Party is kept fully
informed of all developments, and is furnished with copies of all documents and
papers, related thereto and is given the right to participate in the defense and
investigation thereof as provided below, and (iv) such counsel proceeds with
diligence and in good faith with respect thereto. If any Indemnifying Party
shall undertake to defend any Third Party Claim, it shall notify the Indemnified
Party of its intention to do so promptly (and in any event no later than thirty
(30) days) after receipt of notice of the Third Party Claim, and the Indemnified
Party agrees to cooperate in good faith with the Indemnifying Party and its
counsel in the defense of such Third Party Claim. Notwithstanding the
foregoing, the Indemnified Party shall have the right to participate in the
defense and investigation of any Third Party Claim with its own counsel at its
own expense, except that the Indemnifying Party shall bear the expense of such
separate counsel if (A) in the written opinion of counsel to the Indemnified
Party reasonably acceptable to the Indemnifying Party, use of counsel of the
Indemnifying Party's choice would be expected to give rise to a conflict of
interest, (B) there are or may be legal defenses available to the Indemnified
Party that are different from or additional to those available to the
Indemnifying Party, (C) the Indemnifying Party shall not have employed counsel
to represent the Indemnified Party within a reasonable time after notice of the
Third Party Claim is given to the Indemnifying Party or notice that the
Indemnifying Party intends to assume the defense of the Third Party Claim is
given to the Indemnified Party or (D) the Indemnifying Party shall authorize the
Indemnified Party to employ separate counsel at the expense of the Indemnifying
Party. The Indemnifying Party shall not settle any Third Party Claim without
the prior written consent of the Indemnified Party, which shall not be
unreasonably withheld; provided, however, that an Indemnified Party shall not be
-------- -------
required to consent to any settlement involving the imposition of equitable
remedies.
(d) Notwithstanding anything in Section 8.1 or this Section 8.2 to
the contrary, the rights and obligations of the parties with respect to the
representations and warranties set forth in Section 3.32 (Tax Matters), and
Section 5.10 (Section 338) the covenants and agreements set forth in Section 5.9
(Tax Matters), and the indemnification for Taxes shall be governed by Section
8.3.
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8.3 Tax Indemnification. (a) The Sellers hereby jointly and severally
-------------------
agree to indemnify, defend, and hold harmless the Purchaser, the Companies, and
their Subsidiaries (and their respective officers, directors, employees,
Affiliates, successors, and assigns) from and against:
(i) any and all Taxes and any guaranty fund assessments arising
from or in connection with any inaccuracy in any representation or breach
of any warranty made in Section 3.32 of this Agreement, for which purpose
the representations and warranties set forth in Section 3.32 shall be
deemed to have been made with no exception for items disclosed in the
Schedules described in Section 3.32 (other than Schedules 3.32 (b) and
3.32(m);
(ii) any and all Taxes arising from or in connection with the
nonfulfillment by the Sellers of any covenant or agreement relating to
Taxes that is contained in this Agreement;
(iii) any and all Taxes, imposed on the Companies and/or their
Subsidiaries, directly or indirectly, for any Taxable Period or portion
thereof ending on or before December 31, 1994, to the extent the aggregate
amount of such Taxes exceeds the aggregate amount of Taxes accrued in the
Tax Reserve (without regard to deferred Tax assets and liabilities) set
forth in the Financial Statements made for the Companies and their
Subsidiaries as of December 31, 1994 (and, with respect to Northern County,
the Northern County Statutory Statements dated December 31, 1994);
(iv) any and all federal income Tax imposed on the Companies and
their Subsidiaries (excluding Northern County) for the Taxable Period
beginning January 1, 1995, and ending on the Closing Date, subject to
Skandia America's right to receive payment from the Purchaser for (A) the
excess, if any, of the Short Period Tax over the Estimated Tax Payments and
(B), if the 338 Elections are made, the 338 Tax Cost.
(v) any and all state, local, or foreign (and, with respect to
Northern County, federal) income or franchise Tax imposed on the Companies
and their Subsidiaries for the Taxable Period beginning January 1, 1995,
and ending on the Closing Date in excess of the amount of such Tax imposed
on the earnings of the Companies and their Subsidiaries generated in the
ordinary course of their trades or businesses during such period. Such
ordinary course earnings and
82
associated Taxes shall be determined with regard to the 338 Elections (if
any) but without regard to the other transactions contemplated by this
Agreement;
(vi) any and all Taxes resulting from the Companies or their
Subsidiaries ceasing to be included in the consolidated federal income Tax
Return filed by the Sellers Group for its Taxable Period that includes the
Closing Date, including, without limitation, any Taxes attributable to the
restoration of a "deferred intercompany transaction" within the meaning of
Treasury Regulations section 1.1502-13(a)(2), and the recognition of excess
loss accounts.
(vii) any and all federal income Taxes attributable to any
income or gain recognized as a result of, and in accordance with, the
making of the 338 Elections (if any), subject to Skandia America's right to
receive payment from the Purchaser for the 338 Tax Costs;
(viii) any and all federal, state, local, and foreign income or
franchise Taxes incurred in Taxable Periods beginning after December 31,
1994, but attributable to any item of income or gain of a partnership that
is properly allocable to a Taxable Period (or portion thereof) ending on or
before such date;
(ix) any and all unpaid federal, state, local, or foreign Taxes
imposed on a Company or a Subsidiary directly or indirectly, whether
determined on a separate, consolidated, combined, unitary, or group basis,
(A) pursuant to Treasury Regulations section 1.1502-6 or any comparable
provisions of state, local, or foreign law by reason of a Company or a
Subsidiary having been a member of a consolidated, combined, unitary, or
group Tax Return for a Taxable Period ending on or before the Closing Date,
or (B) pursuant to any guaranty, indemnification, or similar agreement made
on or before the Closing Date relating to the sharing of liability for, or
payment of, Taxes; or (C) arising out of, resulting from, or attributable
to any transaction contemplated by this Agreement (including, but not
limited to, any transaction described or set forth in Sections 5.12, 5.13,
5.17, and 6.10) other than the 338 Elections;
(x) any and all Taxes imposed on the Purchaser, the Companies,
and/or their Subsidiaries pursuant to sections 1441 and 1442 of the Code
(concerning withholding of Tax on nonresident aliens and foreign
corporations), section 1445 (concerning the
83
imposition of tax on the disposition of United States real property
interests), and Subchapter A, Chapter 24, of the Code (concerning
withholding from wages) with respect to any payment made by the Purchaser,
a Company, or a Subsidiary to one of more of the Sellers pursuant to this
Agreement or any other agreement made by and between the parties in
connection with the transactions contemplated herein; and
(xi) any reasonable expense (including attorneys' and
accountants' fees) incurred by the Purchaser, a Company, a Subsidiary, or
any of their successors or assigns in connection with any Tax described in
this Section 8.3(a) taking into consideration the provisions of Section
8.3(c)(iii).
(b) The Purchaser agrees to indemnify, defend, and hold harmless the
Sellers (and their respective officers, directors, employees, Affiliates,
successors, and assigns) from and against: (i) any federal income Tax imposed on
the Companies or their Subsidiaries for Taxable Periods beginning after the
Closing Date; (ii) any and all Taxes (other than federal income Taxes) imposed
on the Companies and/or their Subsidiaries for Taxable Periods beginning after
December 31, 1994; and (iii) any reasonable expense (including attorneys' and
accountants' fees) incurred by the Sellers or any of their successors or assigns
in connection with any Tax described in this Section 8.3(b) taking into
consideration the provisions of Section 8.3(c)(iii), provided, however, that the
-------- -------
Purchaser shall not be liable to the Sellers for a Tax described in either
clause (i) or (ii) hereof to the extent that the Sellers are liable for such Tax
under Section 8.3(a).
(c) (i) Unless otherwise provided herein, any party seeking an
indemnity payment pursuant to this Section 8.3 from another party, shall deliver
to the other party written notice of claim for such indemnity payment, which
notice shall include a detailed calculation of the amount of the requested
indemnity payment (the "Indemnity Claim"). To the extent that the notified
party objects to the computation of the indemnity payment requested, the
notified party shall provide a written objection to the party seeking an
indemnity payment within ten (10) Business Days after receipt of the Indemnity
Claim from the party seeking an indemnity payment, which notice shall include
any objection to the computation of the indemnity amount. Both parties shall
agree to the calculation of the indemnity payment and both parties shall
negotiate in good faith to resolve any matters in dispute. If the Sellers and
the Purchaser are unable to resolve any matters in dispute within ten (10)
Business Days after the receipt by the party seeking an indemnity payment of the
other party's objection to the
84
calculation of the indemnity amount, such disputes shall be submitted to the Tax
Settlement Auditor for resolution. Any amount owing under Section 8.3 shall be
paid before the earlier of (x) in the absence of a dispute with respect to the
calculation of the payment due, ten (10) Business Days after a party receives an
Indemnity Claim, or (y) in the case of a dispute, within five (5) Business Days
after the parties settle any such dispute or receive the Tax Settlement
Auditor's determination with respect to any dispute submitted to the Tax
Settlement Auditor. The parties shall cooperate with each other and promptly
make available to each other all data and other information as may be reasonably
requested by each party to substantiate any Indemnity Claim.
(ii) Each party to this Agreement shall promptly notify the other
party in writing of the commencement of any claim, audit, examination, or other
proposed change or adjustment of which it or any of their Affiliates have been
informed of by any taxing authority which may affect the liability of the other
party under this Section 8.3 (each a "Tax Claim"). Such notice shall describe
the asserted Tax Claim in reasonable detail and shall include copies of any
notices and other documents received from any taxing authority in respect of any
such asserted Tax Claim.
(iii) At the Sellers' expense, the Sellers shall have the sole right
to represent the Companies' and their Subsidiaries' interests with respect to
any issue in any tax audit or administrative or court proceeding relating to
Taxes for which the Sellers are responsible hereunder, to employ counsel of
their choice, to settle such issues and take any other actions in their
discretion in connection with such issues; provided, however, that, the Sellers
-------- -------
shall not agree to any settlement of an issue without the consent of the
Purchaser, which consent shall not be unreasonably withheld, to the extent that
such settlement would have an effect on the Purchaser, the Companies or their
Subsidiaries with respect to any Taxes which are the responsibility of the
Purchaser hereunder or with respect to any Taxable Period (or portion thereof)
beginning after December 31, 1994.
(d) For any Taxable Period that begins on or before and ends after
the Closing Date (or the date of any Financial Statement, Interim Financial
Statement, or Statutory Financial Statement), for purposes of apportioning a Tax
to the portion of such Taxable Period that ends on the Closing Date (or such
other date), (i) the parties shall treat that date as the last day of such
Taxable Period, and (ii) the Tax for the Taxable Period that is allocable to the
portion of the Taxable Period ending on such date shall be (A), in the case of a
Tax that is not based on income or
85
gross receipts, the total Tax for the Taxable Period multiplied by a fraction,
the numerator of which is the number of days in the Taxable Period ending on
(and including) such date and the denominator of which is the total number of
days in such Taxable Period, and (B), in the case of a Tax that is based on
income or gross receipts, the Tax that would be due with respect to the period
ending on (and including) such date, based on actual operations of the Company
and the Subsidiaries during such period as shown on their permanent books and
records.
8.4 Miscellaneous. (a) All representations and warranties contained
-------------
in Section 3.28 (Employee Benefits) and Section 3.32 (Tax Matters) with respect
to any Tax shall survive the Closing and shall terminate and expire on the later
to occur of (i) the lapse of the statute of limitations with respect to the
assessment of such Tax (including any extensions thereof) and (ii) sixty (60)
days after the final administrative or judicial determination thereof, and no
claim may be asserted thereafter with the exception of claims arising out of any
fact, circumstance, action, or proceeding to which the Purchaser shall have
given notice to the Sellers prior to the termination of such period of the
reasonable belief that a misrepresentation or breach of a warranty had occurred
and that a Tax will arise therefrom.
(b) For purposes of Section 8.3, all Taxes of the Companies and their
Subsidiaries for all Taxable Periods ending on or before December 31, 1994 shall
be determined without regard to the carryback of any net operating loss, capital
loss, general business credit, or other Tax attribute from a Taxable Period
beginning after December 31, 1994.
(c) Any indemnity payment made pursuant to Section 8.2 or Section 8.3
or other payment made pursuant to this Agreement shall be treated by the parties
and their Affiliates on their Tax Returns as an adjustment to the consideration
being provided for the Shares hereunder unless such treatment would be
inconsistent with a judgment which has been rendered in any judicial or
administrative proceeding governing such treatment, in which case the
indemnifying party shall also indemnify the indemnified party for any increase
in liability for Taxes that is imposed on the indemnified party, any Company,
and/or any Subsidiary, which is attributable to the indemnity payment or other
payment made by the indemnifying party being treated as currently taxable. This
Section 8.4(c) shall not bind the parties, however, with respect to the tax
treatment by the Sellers Group for the Short Period Tax and the 338 Tax Costs.
86
(d) For purposes of this Agreement, "Tax Settlement Auditor" shall
mean a nationally recognized accounting firm or a law firm mutually acceptable
to the Purchaser and the Sellers; provided, that, if the Purchaser and the
-------- ----
Sellers are unable to agree as to a Tax Settlement Auditor within five (5)
Business Days then each of the Sellers and the Purchaser shall select their own
nationally recognized accounting firm or law firm within an additional three (3)
Business Days, which two firms shall within an additional five (5) Business Days
select a third nationally recognized accounting firm or law firm to act as Tax
Settlement Auditor. Unless otherwise indicated, the Tax Settlement Auditor's
resolution of any disputed item under this Agreement shall in each case be
reflected in a written report which will be delivered to the Purchaser and the
Sellers (on the same day) as soon as reasonably practicable after the dispute
was submitted to the Tax Settlement Auditor. The Tax Settlement Auditor's
resolution of any dispute will be final and binding upon the Sellers and the
Purchaser and the Sellers and the Purchaser will each pay one-half of the fees
and expenses of the Tax Settlement Auditor. The Sellers and the Purchaser will
fully cooperate with the Tax Settlement Auditor to resolve any disputed matters.
ARTICLE IX
TERMINATION
9.1 Termination of Agreement. This Agreement may be terminated prior
------------------------
to the Closing:
(a) by either the Purchaser, on the one hand, or by Skandia U.S., on
the other hand, upon written notice to the other if, without fault of the
terminating party, the Closing shall not have occurred on or before
December 31, 1995; provided, however, that if all conditions to the
-------- -------
obligations of the Purchaser to consummate the Closing (as set forth in
Article VI hereof), other than obtaining requisite Consents of insurance
regulatory authorities for the transactions contemplated by this Agreement,
have then been satisfied, and the Purchaser is diligently seeking to obtain
such insurance regulatory Consents, then the right to terminate this
Agreement pursuant to this clause (a) shall not be available to any party
hereto, and the obligations hereunder of the parties hereto shall be
extended, until March 31, 1996; or
(b) at any time by mutual agreement in writing of the parties hereto.
87
9.2 Effect of Termination. In the event of the termination of this
---------------------
Agreement pursuant to Section 9.1, this Agreement shall thereafter become void
and have no effect, and no party hereto shall have any liability or obligation
to any other party hereto in respect of this Agreement, except that the
provisions of Section 5.2(b) (Confidentiality), Section 5.6 (Public
Announcements), Article X (Miscellaneous), this Section 9.2 and, solely for
purposes of the next sentence, Sections 8.2 (Indemnification) and 8.3 (Tax
Indemnification) shall survive any such termination. Nothing herein shall
relieve any party from liability for any breach of any of its representations,
warranties, covenants or agreements contained in this Agreement prior to
termination of this Agreement or any obligations hereunder.
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notices and other communications required to be
-------
given pursuant to this Agreement shall be in writing and shall be effective upon
delivery by hand or upon receipt if sent by certified or registered mail
(postage prepaid and return receipt requested) or by a nationally recognized
overnight courier service (appropriately marked for overnight delivery) or upon
transmission if sent by telex or facsimile (with request for immediate
confirmation of receipt in a manner customary for communications of such
respective type and with physical delivery of the communication being made by
one of the other means specified in this Section 10.1 as promptly as practicable
thereafter). Notices are to be addressed as follows:
(a) If to any of the Sellers to:
Skandia America Corporation
Xxx Xxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
Telecopy No.: (000) 000-0000
with a copy to:
Cadwalader, Xxxxxxxxxx & Xxxx
000 Xxxxxx Xxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
88
and
Skandia Insurance Company Ltd (publ)
X-000 00 Xxxxxxxxx
Xxxxxx 44
Attention: General Counsel
Telecopy No.: 46-8-788 16 80
(b) If to the Purchaser to:
Fund American Enterprises Holdings, Inc.
The 0000 Xxxxx
Xxxx Xxxxxx
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Telecopy No.: (000) 000-0000
with a copy to:
Xxxxx Xxxxxxxxxx
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxxx, Esq.
Telecopy No.: (000) 000-0000
or to such other respective addresses as any of the parties hereto shall
designate to the others by like notice, provided that notice of a change of
address shall be effective only upon receipt thereof.
10.2 Fees and Expenses. Except as provided herein, each of the
-----------------
parties hereto shall pay its own respective fees and expenses (including,
without limitation, the fees of any attorneys, accountants, investment bankers
or other Representatives) incurred in connection with this Agreement and the
transactions contemplated hereby, whether or not such transactions are
consummated.
10.3 Specific Performance. The Sellers acknowledge and agree that in
--------------------
the event of any breach or default by the Sellers under this Agreement, the
Purchaser would be irreparably and immediately harmed and could not be made
whole by monetary damages. It is accordingly agreed that the parties hereto
will (i) waive, in any action, suit or proceeding for specific performance or
other relief referred to in this paragraph, the defense of adequacy of money
damages or a remedy at law, and (ii) be entitled, in addition to any other
remedy to which any of them may be entitled at law or in equity, to compel
specific performance of this Agreement or to obtain a temporary restraining
order, preliminary and permanent injunction or other
89
equitable relief or remedy, in any action, suit or proceeding instituted in any
state or federal court.
10.4 Consent to Jurisdiction; Service of Process. Any action, suit
-------------------------------------------
or proceeding arising out of or relating to this Agreement may be instituted in
any United States Federal court or any state court located in Boston,
Massachusetts, and each party agrees not to assert, by way of motion, as a
defense or otherwise, in any such action, suit or proceeding, any claim it may
now or hereafter have that it is not subject personally to the jurisdiction of
such court, that the action, suit or proceeding is brought in an inconvenient
forum, that the venue of the action, suit or proceeding is improper or that this
Agreement or the subject matter hereof may not be enforced in or by such court.
Each party further irrevocably submits to the jurisdiction of such court in any
such action, suit or proceeding, and irrevocably agrees to be bound by any final
judgment rendered thereby in connection with this Agreement from which no appeal
has been taken or is available. Any and all service of process and any other
notice in any such action, suit or proceeding shall be effective against any
party if given personally or by registered or certified mail, postage prepaid
and return receipt requested, or by personal service on such party. Nothing
contained herein shall be deemed to affect the right of any party to serve
process in any manner permitted by law or to commence legal proceedings or
otherwise proceed against any other party in any other jurisdiction.
10.5 Entire Agreement; Waivers and Amendments. This Agreement
----------------------------------------
(including the Exhibits and Schedules hereto and the documents and instruments
referred to herein) contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes all prior
written or oral agreements and understandings with respect thereto. This
Agreement may only be amended or modified, and the terms hereof may only be
waived, by a writing signed by all parties hereto or, in the case of a waiver,
by the party entitled to the benefit of the terms being waived.
10.6 Assignment; Binding Effect. This Agreement may not be assigned
--------------------------
or delegated, in whole or in part, by any party hereto without the prior written
consent of all other parties hereto, except that the Purchaser shall have the
right at any time, without such consent, to assign its right hereunder to
purchase any or all of the Shares to any wholly owned Subsidiary of the
Purchaser (in which event, the Purchaser shall guarantee the performance by such
Subsidiary of the Purchaser's obligation hereunder to purchase such Shares).
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of
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the parties hereto and their respective successors and assigns.
10.7 Severability. In the event that any provision of this Agreement
------------
shall be declared invalid or unenforceable by a court of competent jurisdiction
in any jurisdiction, such provision shall, as to such jurisdiction, be
ineffective to the extent declared invalid or unenforceable without affecting
the validity or enforceability of the other provisions of this Agreement, and
the remainder of this Agreement shall remain binding on the parties hereto.
However, in the event that any such provision shall be declared unenforceable
due to its scope, breadth or duration, then it shall be modified to the scope,
breadth or duration permitted by law or Governmental Entities and shall continue
to be fully enforceable as so modified.
10.8 No Third Party Beneficiaries. This Agreement is for the benefit
----------------------------
of the parties hereto and is not intended to confer upon any other Person any
rights or remedies hereunder.
10.9 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
giving effect to the principles of conflicts of law thereof.
10.10 Interpretation. This Agreement is the result of arms-length
--------------
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
10.11 Captions. The Article and Section Headings in this Agreement
--------
are inserted for convenience of reference only, and shall not affect the
interpretation of this Agreement.
10.12 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first written above.
FUND AMERICAN ENTERPRISES
HOLDINGS, INC.
By:
-----------------------------
Name:
Title:
SKANDIA U.S. HOLDING CORPORATION
By:
-----------------------------
Name:
Title:
SKANDIA AMERICA CORPORATION
By:
-----------------------------
Name:
Title:
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Schedule 4.4
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CONSENTS OF THE PURCHASER
-------------------------
None
Schedule 4.5
------------
LEGAL PROCEEDINGS OF THE PURCHASER
----------------------------------
None
