OPTION AGREEMENT
between
COLONY INSURANCE COMPANY
as Seller
and
FORT WASHINGTON HOLDINGS, INC.
as Buyer
Dated as of December 31, 1996
OPTION AGREEMENT
OPTION AGREEMENT, dated as of December 31, 1996, between COLONY INSURANCE
COMPANY, a Virginia corporation ("Seller"), and FORT WASHINGTON HOLDINGS, INC.,
a Pennsylvania corporation ("Buyer").
RECITALS
WHEREAS, Seller owns, beneficially and of record, 1,500 shares of common
stock, $1,000 par value per share, (the "Xxxxxxxx Common Stock"), of Xxxxxxxx
Insurance Company, a Virginia corporation (the "Company"), constituting 100% of
all of the issued and outstanding shares of Xxxxxxxx Common Stock; and
WHEREAS, Seller desires to grant an option, and Buyer desires to acquire
an option, to purchase all of the outstanding capital stock of the Company.
NOW THEREFORE, in consideration of the mutual covenants, conditions and
agreements set forth herein and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, it is agreed that:
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the meanings
specified:
1.1 "Affiliate" shall mean, with respect to a specified person or entity,
another person or entity that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control with the
person or entity specified.
1.2 "Agreement" shall mean this Option Agreement, together with the
Exhibits and Schedules attached hereto and the Disclosure Schedules, as the same
may be amended from time to time in accordance with the terms hereof.
1.3 "Basket" shall have the meaning set forth in Section 10.4.
1.4 "Business Day" shall mean any day except a Saturday, Sunday or any day
on which United States chartered banking institutions are required by Law to
close.
1.5 "Buyer" shall mean Fort Washington Holdings, Inc.
1.6 "Buyer's Closing Certificate" shall mean the certificate of an officer
of Buyer, dated as of the Closing Date, with respect to Section 7.1, Section 7.4
and the authorizing resolutions of the Board of Directors of Buyer.
1.7 "Cap" shall have the meaning set forth in Section 10.4.
1.8 "Closing" shall mean the closing of the transactions contemplated by
this Agreement as provided in Section 2.3.
1.9 "Closing Date" shall mean the first to occur of March 31, June 30,
September 30, or December 31, which follows by at least fifteen (15) days the
receipt of the last regulatory approval necessary for Closing to occur, or such
other date as is mutually agreed to by Buyer and Seller.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder.
1.11 "Commissioner" shall mean the Virginia Insurance Commissioner,
his/her predecessors and successors.
1.12 "Company" shall mean Xxxxxxxx Insurance Company, a Virginia
corporation.
1.13 "Company Annual Statements" shall mean the annual statements filed by
the Company on the NAIC prescribed convention blank for each of the years ended
December 31, 1994 and 1995, and, if the Option is exercised after March 1, 1997,
for the year ended December 31, 1996, filed with the Department pursuant to the
Virginia Insurance Law (including management's discussion and analysis and the
supporting memorandum to the actuarial opinions given in connection with such
Company Annual Statements.
1.14 "Company Quarterly Statements" shall mean the quarterly statements of
the Company for the three-month periods ended March 31, 1996, June 30, 1996, and
September 30, 1996, filed with the Department pursuant to the Virginia Insurance
Law.
1.15 "Company Statutory Statements" shall mean, collectively, the Company
Annual Statements and the Company Quarterly Statements.
1.16 "Contracts" shall have the meaning set forth in Section 3.19.
1.17 "Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a person
or entity, whether through the ownership of voting securities, by contract or
otherwise.
1.18 "Department" shall mean the Virginia Insurance Department.
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1.19 "Disclosure Schedule of Buyer" shall mean the disclosure schedule,
dated the date hereof, furnished by Buyer to Seller and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.20 "Disclosure Schedule of Seller" shall mean the disclosure schedule,
dated the date hereof, furnished by Seller to Buyer and containing all lists,
descriptions, exceptions and other information and materials as are required to
be included therein pursuant to this Agreement.
1.21 "Employee Plans" shall mean any employee benefit plans of the Company
and the ERISA Affiliates, which shall include without limitation any contract,
agreement, loan or arrangement which is an "employee benefit plan," as defined
in Section 3(3) of ERISA.
1.22 "ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
1.23 "ERISA Affiliate" shall mean each trade or business, whether or not
incorporated, which with the Company is treated as a single employer under Code
Section 414(b), (c), (m) or (o).
1.24 "Xxxxxxxx Common Stock" shall mean the common stock, $1,000 par
value, of the Company.
1.25 "Indemnity Claim" shall have the meaning set forth in Section 9.5.
1.26 "Intellectual Property" shall have the meaning set forth in Section
3.23(a).
1.27 "Law" shall mean any federal, state, local or other law or
governmental requirement of any kind, and the rules, regulations, permits,
licenses and orders promulgated thereunder.
1.28 "Lien" shall mean any lien, pledge, charge, security interest,
encumbrance, title retention agreement, restriction, advance, claim or option.
1.29 "Material Adverse Effect" shall mean (a) with respect to the Company,
reasonably likely to have a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise) or affairs of the
Company, (b) with respect to Seller, reasonably likely to have a material
adverse effect on the properties, business, results of operations, condition
(financial or otherwise) or affairs of Seller, and (c) with respect to Buyer,
reasonably likely to have a material adverse effect on the properties, business,
results of operations, condition (financial or otherwise) or affairs of Buyer.
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1.30 "Non-Compete and Non-Solicitation Agreement" shall mean the agreement
between Buyer and Rockwood Casualty Insurance Company, Colony Insurance Company
and Front Royal Insurance Company dated as of the Closing Date in the form of
Exhibit A.
1.31 "Opinion of Buyer's Counsel" shall mean the opinion of Dilworth,
Paxson, Xxxxxx & Xxxxxxxx LLP, counsel to Buyer, in form and substance
reasonably acceptable to Seller.
1.32 "Opinion of Seller's Counsel" shall mean the opinion of Xxxxxxxx
Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP, counsel to Seller, in form and substance
reasonably acceptable to Buyer.
1.33 "Option" shall have the meaning set forth in Section 2.1.
1.34 "Option Period" shall have the meaning set forth in Section 2.3.
1.35 "Pension Plan" shall have the meaning set forth in Section 3.22.
1.36 "Permits" shall mean all licenses, permits and other governmental
authorizations, registrations and approvals required to conduct the business of
the Company.
1.37 "Permitted Lien" shall mean any lien described in the Disclosure
Schedule of Seller.
1.38 "Purchased Stock" shall have the meaning set forth in Section 2.1.
1.39 "Purchase Price" shall have the meaning set forth in Section 2.2
hereof.
1.40 "Reserves" as at any date with respect to the Company shall mean the
loss, loss adjustment and unearned premium reserves and other similar amounts
with respect to losses, claims, discounts and expenses in connection with the
Company's insurance business.
1.41 "SAP" shall mean statutory accounting practices required, prescribed
or permitted by the Commissioner, consistently applied throughout the specified
period and in the comparable period in the immediately preceding year.
1.42 "Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
1.43 "Seller" shall mean Colony Insurance Company.
1.44 "Seller's Closing Certificate" shall mean the certificate of an
officer of Seller, dated as of the Closing
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Date, with respect to Section 6.1, Section 6.4 and the authorizing resolutions
of the Board of Directors of Seller.
1.45 "Subsidiary" of any person or entity shall mean any corporation or
other business entity a majority of the voting stock (or other beneficial
interests) of which, entitled to vote for the election of directors (or their
counterparts), is owned by such person or entity or a Subsidiary of such person
or entity.
1.46 "Surplus" shall mean the statutory surplus of the Company determined
in accordance with SAP.
1.47 "Surplus Certificate" shall mean, collectively, (i) the certificate
from Seller, and (ii) the certificate from the chief financial officer of the
Company, in each case certifying that as of the Closing Date, the Surplus of the
Company is equal to or greater than Four Million Dollars ($4,000,000.00).
1.48 "Tax Losses" shall mean any taxes, interest, penalties and other
amounts required to be paid to any federal, state or local taxing authority by
the Company on account of or arising out of any periods ending on or prior to
the Closing Date (including any liability that may be imposed on the Company by
reason of it being a member of a group that filed a federal consolidated tax
return or any combined, unitary or consolidated state or local tax return), net
of any federal or state income tax benefit realized or the then-present value
(based on a discount rate of 5%) of any such income tax benefit to be realized
by the Company by reason of the facts and circumstances giving rise to the
indemnification pursuant to Article IX (e.g. deductions disallowed for a period
ending on or prior to the Closing Date that are allowed after the Closing Date),
except (i) to the extent the same have been reserved for in the Company Annual
Statements, in the Company Quarterly Statements or, with respect to any period
ending after September 30, 1996, the internal financial statements of the
Company, as disclosed to Buyer, and (ii) with respect to interest payments, only
the after tax costs of such interest shall be included in computing Tax Losses.
1.49 "Virginia Insurance Law" shall mean all of the statutes and
regulations of the State of Virginia applicable to insurance companies, as in
effect on the Closing Date.
Unless the context of this Agreement otherwise requires, (a) words of any
gender are deemed to include the other gender, (b) words using the singular or
plural number also include the plural or singular number, respectively, (c) the
terms "hereof," "herein," "hereby," "hereto," and derivative or similar words
refer to this entire Agreement, (d) the terms "ARTICLE" or "Section" refer to
the specified ARTICLE or Section of this Agreement, (e) the phrase "in the
ordinary course of business and consistent with past practice" refers to the
business,
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operations, affairs, and practice of the Company consistent with past practices
of such business, operations, and affairs, (f) the term "including" and other
forms of such term, with respect to any matter or thing, means "including but
not limited to" such matter or thing, (g) all reference to "dollars" or "$"
refer to currency of the United States of America, and (h) any undefined term in
this Agreement shall have the meaning customarily ascribed to it by the casualty
insurance industry.
ARTICLE II
OPTION TO PURCHASE STOCK
2.1 Grant of Option. In consideration of the payment by Buyer of Ten
Thousand Dollars ($10,000.00) in cash, receipt of which is hereby acknowledged
by Seller, Seller hereby grants to Buyer the exclusive and irrevocable option
(the "Option") to acquire, upon the terms and subject to the conditions set
forth in this Agreement, 1,500 shares of Xxxxxxxx Common Stock, constituting
100% of the issued and outstanding shares of Xxxxxxxx Common Stock (the
"Purchased Stock").
2.2 Purchase Price and Payment Terms. (a) The consideration for the
Purchased Stock (the "Purchase Price") shall be a total sum payable in cash
equal to Four Million Five Hundred Thousand Dollars ($4,500,000.00) (the "Cash
Payment").
2.3 Exercise of Option. (a) The Option may be exercised by Buyer at any
time during the period commencing on the date hereof and expiring at 5:00 p.m.
Philadelphia time on June 30, 1997 (the "Option Period"), by giving at least ten
(10) days' notice thereof to Seller in the manner and at the address set forth
in Section 12.6 below. Within fifteen (15) days of such exercise, Buyer shall
file any necessary applications for regulatory approval. Buyer and Seller shall
each use their best efforts to obtain promtly any such regulatory approvals.
Thereupon, on the Closing Date, Seller shall sell, assign, transfer, convey and
deliver to Buyer, and Buyer shall acquire from Seller, all of the Purchased
Stock upon the terms and subject to the conditions set forth in this Agreement.
(b) The notice of the exercise of the Option must be accompanied by a
deposit (the "Deposit") in the amount of One Hundred Thousand Dollars ($100,000)
delivered to Seller in immediately available funds. Seller shall hold the
Deposit in a segregated, interest-bearing account. Any interest earned shall
follow principal. The Deposit shall not be refundable except if any of the
applicable regulatory authorities (i) deliver final written disapproval of the
transactions contemplated hereby, or (ii) fail to approve such transactions on
or before December 16, 1997.
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2.4 Closing. (a) The Closing will take place at the offices of Xxxxxxxx
Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx,
Xxx Xxxx 00000, at 10:00 a.m., local time, on the Closing Date.
(b) At the Closing, Buyer shall deliver or cause to be delivered the Cash
Payment by wire transfer of immediately available funds to an account or
accounts designated by Seller.
(c) At the Closing, Seller shall deliver one or more certificates
representing 1,500 shares of Xxxxxxxx Common Stock, constituting 100% of the
issued and outstanding shares of Xxxxxxxx Common Stock, accompanied by stock
powers duly endorsed in blank, with all required transfer taxes or stamps paid
for or affixed thereto, free and clear of all Liens;
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
3.1 Organization and Good Standing. (a) Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Virginia.
(b) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Virginia. The Company has all
requisite corporate power and authority to conduct its business as currently
conducted and to own or lease and to operate its properties. The Company is duly
qualified or admitted to do business and is in good standing as a foreign
corporation in all jurisdictions in which the ownership, use or leasing of its
assets or properties or the conduct or nature of its business makes such
qualification or admission necessary, except where the failure to be so
qualified would not have a Material Adverse Effect with respect to the Company.
3.2 Authority, Validity and Enforceability. Seller has full corporate
power and authority to execute, deliver and perform its obligations and to
consummate the transactions required of it under this Agreement. The execution,
delivery and performance by Seller of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Seller. No other action or proceeding on the part of
Seller is necessary to authorize this Agreement or the consummation of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Seller and constitutes a valid, legal and binding
obligation of Seller, enforceable in accordance with its terms.
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3.3 No Violation or Breach. The execution, delivery and performance by
Seller of this Agreement does not, and the consummation of the transactions
contemplated hereby will not (with or without the giving of notice or the lapse
of time or both):
(a) violate or require any consent or approval under any provision
of the certificate of incorporation or bylaws of Seller or the Company; or
(b) except as set forth on Schedule 3.3 of the Disclosure Schedule
of Seller, violate or result in a default of, or require any consent or
approval under any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority, to which Seller or
the Company is a party or is otherwise subject; or
(c) result in any Lien upon any properties, assets, business or
agreements of Seller or the Company howsoever arising, except for such
Liens which would not have a Material Adverse Effect with respect to
either Seller or the Company.
(d) except as set forth in Section 3.9, violate or result in a
default of, or require any consent or approval under, or result in the
termination of or loss of any right (including any right of acceleration,
termination or cancellation) in or with respect to, any Contract or
Permit, except for such violations or breaches which would not have a
Material Adverse Effect with respect to either Seller or the Company; or
3.4 Title to Shares. (a) The Purchased Stock consists of 1,500 issued and
outstanding shares of Xxxxxxxx Common Stock owned beneficially and of record by
Seller, free and clear of any Liens. All of such outstanding shares have been
duly authorized and validly issued and are fully paid and non-assessable.
(b) Upon delivery to Buyer of certificates representing the Xxxxxxxx
Common Stock, Buyer will acquire good and valid title to the Xxxxxxxx Common
Stock, free and clear of all Liens other than (a) Liens that arise solely as a
result of Buyer's actions and (b) restrictions on transferability generally
imposed on transfers of securities by federal and state securities laws and
state insurance laws.
3.5 Net Worth. Upon consummation of the transactions contemplated hereby,
the "present fair saleable value" of the assets of Seller as of the Closing Date
shall be greater than the amount of all "liabilities, contingent or otherwise,"
of Seller as of the Closing Date, as such terms are determined in accordance
with applicable federal and state laws governing determinations of the
insolvency of debtors.
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3.6 Licenses and Permits. The Company has all Permits required in each of
the jurisdictions listed on Schedule 3.6 of the Disclosure Schedule of Seller to
engage in the business of writing insurance policies of the type specified on
such Schedule 3.6 except for such Permits, the absence, expiration or invalidity
of which, individually or in the aggregate, does not have a Material Adverse
Effect with respect to the Company. The Company is duly licensed and qualified
to transact those lines of insurance business in those states and jurisdictions
listed on such Schedule 3.6. Except as set forth on such Schedule 3.6, all such
Permits are owned by the Company, are in full force and effect and none of the
Company or Seller has received any notice of any event, inquiry, investigation
or proceeding that could result in a penalty or fine in excess of $25,000.00,
singly or in the aggregate, or in the suspension, revocation or limitation on
any such Permit, and to the knowledge of Seller, there is no basis for any such
fine, penalty, suspension, revocation or limitation. The Company possesses the
minimum statutory capital and surplus as required by each such jurisdiction for
the type of insurance written by the Company in each jurisdiction set forth on
such Schedule 3.6.
3.7 Capitalization. (a) The authorized capital stock of the Company
consists of 1,500 shares of capital stock, $1,000 par value, all of which are
designated Xxxxxxxx Common Stock. All shares of Xxxxxxxx Common Stock are issued
and outstanding. All of the outstanding Xxxxxxxx Common Stock is owned of record
and beneficially by Seller, free and clear of any Liens except for the Lien
created pursuant to this Agreement. All such outstanding shares have been duly
authorized and validly issued and are fully paid and non-assessable.
(b) There are no outstanding securities, rights (pre-emptive or other),
subscriptions, calls, warrants, options, or other agreements (except for this
Agreement) that give any person or entity the right to (i) purchase or otherwise
receive or be issued any shares of capital stock of the Company (or any interest
therein) or any security convertible into or exchangeable for any shares of
capital stock of any of the Company (or any interest therein), (ii) receive any
dividend, voting or ownership rights similar to those accruing to a holder of
shares of capital stock of the Company, or (iii) participate in the equity,
income or election of directors or officers of the Company. Except as set forth
in Schedule 3.7 of the Disclosure Schedule of Seller, there are no proxies,
voting trusts or other agreements or understandings to which either Seller is a
party with respect to the voting of any of the Purchased Stock.
3.8 Subsidiaries. The Company has no Subsidiaries.
3.9 Consents. Except as set forth in Schedule 3.9 of the Disclosure
Schedule of Seller, no consent, license, approval, order or authorization of, or
registration, filing or declaration
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with, any governmental authority, is required to be obtained or made, and no
consent of any third party is required to be obtained, by Seller or the Company
in connection with the execution, delivery and performance of this Agreement and
the transactions contemplated hereby.
3.10 Statutory Statements. Seller has delivered to Buyer (a) the Statutory
Statements and (b) any annual statutory statements of the Company that were
filed for the year ended December 31, 1995 in any jurisdiction (other than
Virginia) and which differ from the Annual Statutory Statement for the year
ended December 31, 1995. Each such Statutory Statement (i) complied in all
material respects with all applicable laws when so filed, (ii) was prepared in
accordance with SAP, and (iii) presents fairly in all material respects the
financial position of the Company as of the respective dates thereof and the
related summary of operations and changes in capital and surplus and in cash
flows of the Company for and during the respective periods covered thereby. No
material deficiency has been asserted by any insurance regulatory authority with
respect to any such Statutory Statement.
3.11 Insurance Regulatory Filings. (a) To the best knowledge of Seller,
since January 1, 1991 through and including December 31, 1994 (the "1991-1994
Period"), the Company has filed or otherwise provided all reports, data, other
information and applications required to be filed or otherwise provided to the
Department and all other federal, state or local governmental authorities with
jurisdiction over the Company except where the failure to file would not have a
Material Adverse Effect with respect to the Company. Seller has made available
to Buyer copies of all reports of examinations (whether financial, market
conduct or other) issued by the Department and all other state insurance
regulatory authorities in respect of the Company received, to the best knowledge
of Seller, during the 1991-1994 Period. Except as set forth on Schedule 3.11 of
the Disclosure Schedule of Seller, no deficiencies material to the financial
condition, operations or prospects of the Company has been asserted by the
Department or any other state insurance regulatory authority with respect to any
reports or filings made on behalf of the Company, to the best knowledge of
Seller, in the 1991-1994 Period. Seller has made available to Buyer copies of
all written responses submitted on behalf of the Company, to the best knowledge
of Seller, in the 1991-1994 Period, in respect of any report of examination
(whether financial, market conduct or other) of the Company by the Department or
any other state regulatory authority.
(b) Since January 1, 1995 (the "Ownership Period"), the Company has filed
or otherwise provided all reports, data, other information and applications
required to be filed or otherwise provided to the Department and all other
federal, state or local governmental authorities with jurisdiction over the
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Company except where the failure to file would not have a Material Adverse
Effect with respect to the Company. Seller has made available to Buyer copies of
all reports of examinations (whether financial, market conduct or other) issued
by the Department and all other state insurance regulatory authorities in
respect of the Company received during the Ownership Period. Except as set forth
on Schedule 3.11 of the Disclosure Schedule of Seller, no deficiencies material
to the financial condition, operations or prospects of the Company has been
asserted by the Department or any other state insurance regulatory authority
with respect to any reports or filings made on behalf of the Company in the
Ownership Period. Seller has made available to Buyer copies of all written
responses submitted on behalf of the Company in the Ownership Period, in respect
of any report of examination (whether financial, market conduct or other) of the
Company by the Department or any other state regulatory authority.
(c) Seller has made available to Buyer all files of the Company relating
to correspondence with the Department or any other insurance regulatory
authority.
3.12 Insurance Issued. Except as required by Law or except as disclosed in
Schedule 3.12 of the Disclosure Schedule of Seller:
(a) All outstanding insurance Contracts issued, reinsured or
underwritten by the Company (i) in the period prior to January 1, 1995
(the "Pre-Ownership Period") are, to the best knowledge of Seller, and
(ii) in the Ownership Period are, to the extent required under applicable
laws, on forms and at rates approved by the insurance regulatory authority
of the jurisdiction where issued or have been filed with and not objected
to by such authority within the period provided for objection.
(b) All insurance contract benefits payable by the Company or, to
the best knowledge of Seller, by any other person or entity that is a
party to or bound by any reinsurance or other similar Contract with the
Company (i) with respect to any such Contracts issued in the Pre-Ownership
Period have, to the best knowledge of Seller, and (ii) with respect to any
such Contracts issued in the Ownership Period, have in all material
respects been paid in accordance with the terms of the insurance Contracts
under which they arose, except for such benefits for which the Company
believes there is a reasonable basis to contest payment.
(c) No outstanding insurance Contract issued, reinsured or
underwritten by the Company entitles the holder thereof or any other
person or entity to receive stock dividends, distributions or other
benefits based on the revenues or earnings of the Company or any other
person or entity, except for policyholder dividends paid in the ordinary
course of business.
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(d) To the best knowledge of Seller, all amounts to which the
Company is entitled under reinsurance or other similar Contracts
(including without limitation amounts based on paid and unpaid losses) are
collectible in the ordinary course of business.
(e) To the best knowledge of Seller, each insurance agent, at the
time such agent wrote, sold, or produced business for the Company, was
duly licensed as an insurance agent (for the type of business written,
sold, or produced by such insurance agent) in the particular jurisdiction
in which such agent wrote, sold, or produced such business for the
Company.
3.13 Transactions with Interested Persons. Except as disclosed in Schedule
3.13 of the Disclosure Schedule of Seller, no officer or director of Seller or
any of its Affiliates or the Company owns, directly or indirectly, on an
individual or joint basis, any material interest in, or serves as an officer or
director of, any customer, competitor or supplier of the Company or any person
or entity which has a contract or arrangement with any of the Companies.
Schedule 3.13 of the Disclosure Schedule of Seller lists or describes all
contracts between either Seller or any of its Affiliates and the Company and all
services provided by Seller or any of its Affiliates to the Company.
3.14 Reinsurance Policies. Set forth in Schedule 3.14 of the Disclosure
Schedule of Seller is a complete and accurate list of all reinsurance contracts
and treaties under which the Company has ceded or assumed reinsurance
obligations and the cost and terms and the expiration date of each such contract
or treaty. Such Schedule 3.14 specifies whether any such contract or treaty has
been commuted or has lapsed. Each contract and treaty set forth on such Schedule
3.14 (or required to be set forth on such Schedule 3.14) will not be terminated
or otherwise adversely affected as a result of the transactions contemplated
hereby. Except as set forth on such Schedule 3.14, each such contract or treaty
is in full force and effect, and any such contract or treaty under which the
Company cedes reinsurance obligations is qualified under all Laws applicable to
reinsurance policies and treaties to receive the statutory credit assigned to
such contract or treaty in the Statutory Statements at the time such Statutory
Statements were prepared. During the Ownership Period or, to the best knowledge
of Seller, during the Pre-Ownership Period, the Company has not violated any of
the terms and conditions of any such policies and treaties and, to the best
knowledge of Seller, all of the covenants to be performed by any other party
under any such policy and treaties were negotiated with independent third
parties in good faith at arm's length, other than any such policies or treaties
among the Company and its Affiliates as listed on such Schedule 3.14.
3.15 Litigation. Except as set forth on Schedule 3.15 of the Disclosure
Schedule of Seller, and except for claims made
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under or in connection with insurance policies issued by the Company:
(a) there is no action, proceeding, investigation or claim pending
or, to the Seller's knowledge, threatened against or affecting the Company
or its assets before any court or governmental or regulatory authority or
body that, if adversely determined, would have a Material Adverse Effect
with respect to the Company or which questions the validity of this
Agreement or any action taken or to be taken pursuant hereto or in
connection with the purchase and sale of the Purchased Stock.
(b) to the best knowledge of Seller, there is no state of facts and
there has occurred no event or group of related events, that would form
the basis of any claim against the Company for liability in connection
with the performance of the Contracts or the conduct of its business that,
if adversely determined, would have a Material Adverse Effect with respect
to the Company or which questions the validity of this Agreement or any
action taken or to be taken pursuant hereto or in connection with the
purchase and sale of the Purchased Stock.
Except as set forth on Schedule 3.15 of the Disclosure Schedule of Seller, with
respect to claims made against the Company under or in connection with insurance
policies issued by the Company, there are no claims as to which liability in
excess of applicable coverage limits has been asserted against the Company
including, without limitation, claims for bad faith or for punitive damages.
3.16 No Brokers. Other than counsel, Seller and the Company have not
employed any finder, broker, agent or other intermediary in connection with the
negotiation of this Agreement or the consummation of any of the transactions
contemplated hereby.
3.17 Absence of Certain Changes. Except as set forth on Schedule 3.17 of
the Disclosure Schedule of Seller, since September 30, 1996, the Company has
not:
(a) issued, sold or delivered or agreed to issue, sell or deliver
any shares of its capital stock or any options, warrants or rights to
acquire any such capital stock, or securities convertible into or
exchangeable for such capital stock except for the transactions
contemplated by this Agreement;
(b) incurred any obligations or liabilities, whether absolute,
accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of
others) other than obligations and liabilities incurred in the ordinary
course of business and obligations and liabilities under the Contracts;
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(c) mortgaged, pledged or subjected to any Lien any of its assets,
tangible or intangible;
(d) acquired or disposed of any assets or properties, or entered
into any agreement or other arrangement for any such acquisition or
disposition except in the ordinary course of business;
(e) declared, made, paid or set apart any sum for any dividend or
other distribution to its shareholders or purchased or redeemed any shares
of its capital stock or any option, warrant or right to purchase any such
capital stock, or reclassified its capital stock;
(f) entered into any employment agreement;
(g) forgiven or cancelled any debts or claims or waived any rights
of material value;
(h) conducted its business other than in the ordinary course of
business, except the Contracts;
(i) granted any rights or licenses under any of its trade names or
entered into general agency arrangements;
(j) formed any Subsidiaries;
(k) changed any method of accounting or accounting practice or
policy in any material respect other than as required by SAP or applicable
Law;
(l) been sued or, to the best knowledge of Seller, threatened with
any suit by any former employee;
(m) suffered or experienced any change in relations with or material
loss of any customers; or
(n) agreed to take any action described in clauses (a) through (n).
3.18 Taxes.(a) The Company is a member of the affiliated group, within the
meaning of Section 1504(a) of the Code, of which Front Royal, Inc. is the common
parent, such affiliated group files a consolidated federal income tax return,
and except as a member of an affiliated group within the meaning of Section
1504(a) of the Code, of which Figgie International, Inc. was the common parent,
the Company has never filed a consolidated federal income tax return with (or
been included in a consolidated return of) a different affiliated group;
provided that with respect to the Pre-Ownership Period, the foregoing is to the
best knowledge of Seller and with respect to the Ownership Period, the foregoing
is without such limitation. The Company has filed or caused to be filed or (in
the case of returns or reports not yet due) will
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file all tax returns and reports required to have been filed by or for it on or
before the due date thereof (including extensions) that is on or before the
Closing Date, and all material information set forth in such returns or reports
is or (in the case of returns or reports not yet filed) will be accurate and
complete. The Company has paid or made adequate provision for or (with respect
to returns or reports not yet filed) will make adequate provision for all taxes,
additions to tax, penalties and interest for periods covered by those returns or
reports. The Company is in compliance with, and its records contain all
information and documents (including, without limitation, properly completed IRS
Forms W-9) necessary to comply with, all applicable tax information reporting
and tax withholding requirements under federal, state, local, and foreign laws,
rules, and regulations, and such records identify with specificity all accounts
subject to backup withholding under Section 3406 of the Code.
(b) The Company has collected or withheld all amounts required to be
collected or withheld by it for any taxes, and all such amounts have been paid
to the appropriate governmental agencies or set aside in appropriate accounts
for future payment when due. The balance sheets contained in the Statutory
Statements fully and properly reflect, as of their dates, the liabilities of the
Company for all accrued taxes, additions to tax, penalties, and interest. Except
as disclosed on Schedule 3.18 of the Disclosure Schedule of Seller, there are no
due but unpaid taxes, additions to tax, penalties, or interest payable by the
Company or any other person that (i) are or could become a Lien on any asset, or
otherwise adversely affect the business, properties, or financial condition, of
the Company or (ii) could cause Buyer to incur any liability.
(c) Schedule 3.18 of the Disclosure Schedule of Seller describes all tax
elections, consents, and agreements made by or affecting the Company, lists all
types of taxes paid and returns filed by or on behalf of the Company, and
expressly indicates each tax with respect to which the Company is or has been
included in a consolidated, unitary, or combined return. Except as disclosed on
such Schedule 3.18, the Company has not granted (or is subject to) any waiver of
the period of limitations for the assessment of tax for any currently open
taxable period, and no unpaid tax deficiency has been asserted against or with
respect to the Company by any taxing authority.
(d) The Company has not made or entered into, nor holds any asset subject
to, a consent filed pursuant to Section 341(f) of the Code and the regulations
thereunder. None of the assets of the Company is or will be required to be
treated as being owned by any person (other than such Company) pursuant to the
provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended
and in effect immediately before the enactment of the Code, and the rules and
regulations thereunder.
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Except as disclosed on such Schedule 3.18, the Company is not required to
include in income any amount for an adjustment pursuant to Section 481 of the
Code.
(e) There is no contract, agreement, plan or arrangement covering any
person that, individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company by reason of Section 280G of
the Code.
3.19 Contracts. The Company is not a party to or bound by any agreements,
contracts and commitments, written or oral, including, without limitation,
equipment lease obligations and licenses for software used by the Company
(collectively, the "Contracts"), excluding: (i) any of the foregoing listed on
Schedule 3.14 of the Disclosure Schedule of Seller [Reinsurance]; and (ii)
insurance policies written by the Company in the ordinary course of business.
3.20 Compliance with Other Instruments and Laws. Except as set forth on
Schedule 3.20 of the Disclosure Schedule of Seller, the Company is not in
violation of any term of its charter or by-laws or any Contract or of any
judgment, decree or order and the Company is not in violation of any Law,
permit, concession, grant, franchise, license or other governmental
authorization or approval applicable to it or any of its properties, except for
such violation that would not have a Material Adverse Effect with respect to the
Company.
3.21 No Employees. The Company has no employees.
3.22 Employee Benefit Matters. Neither the Company nor any ERISA Affiliate
(with respect to the Pre-Ownership Period, to the best knowledge of Seller, and
with respect to the Ownership Period without such limitation):
(a) has ever been a party to any employee pension benefit plan (as
defined in Section 3(2) of ERISA) (a "Pension Plan"), any "employee
benefit plan," as defined in Section 3(3) of ERISA, any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), or any other Employee
Plan;
(b) has incurred any liability to the Pension Benefit Guaranty
Corporation ("PBGC") or to the Internal Revenue Service with respect to
any Pension Plan; or
(c) has ever been a party to any multiemployer plan (as defined in
Section 3(37) of ERISA).
3.23 Assets and Properties. (a) Schedule 3.23(a) of the Disclosure
Schedule of Seller contains an accurate and complete list of all assets of the
Company, including without limitation all debentures, notes, stocks, limited
partnership interests, other securities, mortgages, and other investment assets
owned by
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the Company as of November 30, 1996. The Company had good and marketable title
to all debentures, notes, stocks, limited partnership interests, other
securities, mortgages, and other investment assets (excluding real property)
owned by it as of such date, free and clear of all Liens.
(b) The Company does not own or lease any real property.
3.24 Operating Insurance. Schedule 3.24 of the Disclosure Schedule of
Seller contains a true and complete list and description of all liability,
property, workers compensation, directors and officers liability and other
similar insurance contracts that insure the business, operations, or affairs of
each of the Companies or affect or relate to the ownership, use or operations of
any of the assets or properties of the Company.
3.25 Bank Accounts. Schedule 3.25 of the Disclosure Schedule of Seller
contains (a) a true and complete list of the names and locations of all banks,
trust companies, securities brokers, and other financial institutions at which
the Company has an account or safe deposit box or maintains a banking,
custodial, trading, trust, or other similar relationship, (b) a true and
complete list and description of each such account, box and relationship, (c) a
true and complete list of all signatories for each such account and box and (d)
a true and complete list of all compensating balances required with respect to
each such account.
3.26 Charter Documents and Bylaws. Seller has heretofore made available to
Buyer true and complete copies of the articles of incorporation and bylaws of
the Company, as in effect on the date hereof.
3.27 Minute Books. The minute books of the Company accurately reflect in
all material respects all formal actions taken at all meetings and all consents
in lieu of meetings of the stockholders of the Company since the date of
formation of the Company, and all formal actions taken at all meetings and all
consents in lieu of meetings of the boards of directors of the Company and all
committees thereof since the date of formation of the Company. All of such
minute books have previously been made available for inspection by Buyer.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania.
4.2 Authority, Validity and Enforceability. Buyer has full corporate power
and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions required of it contemplated hereby.
The execution, delivery and performance by Buyer of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by Buyer's Board of Directors. No other action or proceeding on the
part of the Buyer is necessary to authorize the Agreement or the consummation of
the transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer, and constitutes a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms.
4.3 No Violation or Breach. The execution, delivery and performance of
this Agreement by Buyer does not, and the consummation of the transactions
required by Buyer contemplated hereby, will not (with or without the giving of
notice or lapse of time or both):
(a) violate or require any consent or approval under, any provision
of the certificate of incorporation or bylaws of Buyer;
(b) except as set forth in Section 4.4 hereof, violate or result in
a default of, or require any consent or approval under any agreement,
policy, instrument, contract, commitment, license, franchise, permit or
trust to which Buyer is a party or is otherwise subject, except for such
violations or breaches which would not have a Material Adverse Effect with
respect to Buyer; or
(c) violate or result in a default of, or require any consent or
approval under, any judgment, settlement, consent, injunction, decree,
order or ruling of any court or governmental authority to which Buyer is a
party or otherwise subject.
4.4 Consents. Except as set forth on Schedule 4.4 of the Disclosure
Schedule of Buyer, no consent, license, approval, order or authorization of, or
registration, filing or declaration with, any governmental authority is required
to be obtained or made, and no consent of any third party is required to be
obtained, by Buyer, in connection with its execution, delivery
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and performance of this Agreement and the transactions contemplated hereby.
4.5 Purchase for Investment. Buyer is purchasing the Purchased Stock for
its own account for investment and not with a view to any distribution thereof
within the meaning of the Securities Act. Buyer acknowledges that the offer and
sale of the Purchased Stock pursuant hereto are intended to be exempt from the
Securities Act pursuant to Section 4(2) thereof, and the Purchased Stock may not
be resold or otherwise transferred except pursuant to an effective registration
statement or an exemption from registration thereunder, and pursuant to
registration or qualification (or exemption therefrom) under applicable state
securities laws.
4.6 Litigation. There is no action, proceeding, investigation or inquiry
pending or, to the knowledge of Buyer, threatened against Buyer which questions
the validity of this Agreement or any action taken or to be taken pursuant
hereto or thereto or in connection with the purchase and sale of the Purchased
Stock.
4.7 No Brokers. Other than counsel, Buyer has not employed any finder,
broker, agent or other intermediary in connection with the negotiation of this
Agreement or the consummation of the transactions contemplated hereby.
ARTICLE V
CERTAIN MATTERS PENDING THE CLOSING
5.1 Carry on in Regular Course. Except as provided in this Agreement, or
with the express written consent of Buyer, between the date hereof and the
Closing Date the Company shall:
(a) carry on its respective business in the ordinary course and
substantially in the same manner as heretofore carried on;
(b) use its commercially reasonable best efforts to preserve its
properties and business;
(c) not dispose of any material asset of the Company; and
(d) not make, declare or pay any dividend or distribution on any
shares of any of the Company's capital stock, except as is necessary for
the transactions described in Section 5.5 below.
Sellers will advise Buyer promptly in writing of any material adverse change in
the properties, business, results of opera-
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tions, condition (financial or otherwise) or affairs of the Company.
5.2 Indebtedness. Without the prior written consent of Buyer, which shall
not be unreasonably withheld, the Company shall not:
(a) create, incur or assume any indebtedness for borrowed money;
(b) mortgage, pledge or otherwise encumber or subject to any Lien
any of its properties or assets other than Permitted Liens; or
(c) create or assume any other indebtedness except accounts payable
and other liabilities incurred in the ordinary course of business.
5.3 Issuance of Stock. The Company shall not issue any shares of capital
stock of any class or grant any warrants, options or rights to subscribe for any
shares of capital stock of any class or securities convertible into or
exchangeable for, or which otherwise confer on the holder any right to acquire,
any shares of capital stock of any class.
5.4 No Hiring of Employees. The Company shall not hire any employees,
institute any employee benefits with respect to any employees or create any
Employee Plans.
5.5 Closing Date Balance Sheet. The Company shall, and Seller shall cause
the Company to, engage in any transactions prior to the Closing Date which are
necessary in order for the Company to have as of the Closing Date (a) assets of
Four Million Dollars ($4,000,000) in cash or cash equivalents, (b) no Reserves
or liabilities, and (c) Surplus of Four Million Dollars ($4,000,000). Such
transactions and their results or effects shall comply in all respects with
Virginia Insurance Law, shall be acceptable to the Commissioner and the
Department as of the Closing Date and shall be reasonably acceptable to Buyer.
5.6 Compliance with Law. The Company shall use its commercially reasonable
best efforts to comply in all material respects with all applicable Law and with
all orders of any court or of any federal, state, municipal or other
governmental department.
5.7 Access to Information. At Buyer's expense, Buyer and its authorized
agents, officers and representatives, for the purpose of confirming the
representations and warranties contained in Article III, shall have reasonable
access to the properties, books, records, contracts, information and documents
of the Company; provided, however, that such examinations and investigations,
(a) shall occur with a minimum of twenty-four
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hours advance written notice, (b) shall be conducted during normal business
hours, and (c) shall not unreasonably interfere with the operations and
activities of the Company. Seller and the Company shall cooperate in all
reasonable respects with Buyer's examinations and investigations. Buyer shall
maintain all information regarding the Company in complete confidence and shall
not disclose such information to any person except as required by law, provided,
however, Buyer shall not be required to keep confidential information that (i)
is or becomes generally available to the public other than as a result of
disclosure by Buyer, (ii) is or becomes available to Buyer on a nonconfidential
basis from a source other than Seller or the Company or (iii) Buyer or any of
its Affiliates is required to disclose pursuant to applicable law, rule,
regulation or subpoena. At Buyer's expense, Buyer shall be entitled to designate
an agent of Buyer reasonably satisfactory to Seller to act as an observer of the
operations of the Company and such agent shall have access to all properties,
books, records, contracts, information, documents and personnel of the Company
subject to the limitations set forth in clause (a), (b) and (c) above. Seller
acknowledges and agrees that nothing in this Section 5.6 shall be deemed to
release Seller from any of its liabilities or obligations under this Agreement.
5.8 Cooperative; Best Efforts. (a) Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary, proper and advisable under applicable Law
(including, without limitation, the Virginia Insurance Law), to consummate and
make effective the transactions contemplated by this Agreement. Each of the
parties hereto agrees to make all required regulatory filings promptly after the
date hereof and to diligently pursue compliance with Virginia Insurance Law.
(b) In furtherance of and not in limitation of the foregoing, Seller and
Buyer each agree to inform the other party prior to any and all scheduled
meetings and communications, whether oral (including telephonic or otherwise) or
written, between such party and the Department with respect to this Agreement or
any of the transactions contemplated hereby, and promptly thereafter to provide
the other party with a complete and accurate report of each such scheduled
meeting or communication, as well as any unscheduled meetings and
communications, and, if in writing, with a copy thereof.
5.9 Consents. Seller and Buyer shall diligently pursue obtaining consents
of all third parties and governmental authorities necessary to the consummation
of the transactions contemplated by this Agreement.
5.10 Publicity. All general notices, releases, statements and
communications to employees, suppliers, distributors and
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customers of the Company and to the general public and the press relating to the
transactions covered by this Agreement shall be made only at such times and in
such manner as may be mutually agreed upon by Seller and Buyer.
5.11 No Solicitation. (a) Subject to clause (b) below, neither Seller nor
the Company shall, after the date hereof until the earlier of the Closing or the
termination of this Agreement pursuant to Section 10.1 hereof, directly or
indirectly, through any officer, director, employee, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of all or (other than in the ordinary
course of business) a substantial portion of the assets of, or any equity
interest in, the Company or any business combination with the Company, or
participate in any negotiations regarding, or furnish to any other person any
information with respect to, or otherwise cooperate in any way with or assist or
participate in, facilitate or encourage, any effort or attempt by any other
person to do or seek any of the foregoing.
(b) Seller and the Company may entertain unsolicited proposals or offers
and participate in any negotiations regarding such unsolicited proposals or
offers.
5.12 Articles and Bylaws. Seller covenants and agrees that the Company
shall not amend its Articles of Incorporation or bylaws, except as may be
necessary to comply with the terms of this Agreement, or merge or consolidate
with or into any other corporation.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF BUYER
Each and every obligation of Buyer to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 6.7 [Regulatory Approvals],
may be waived by Buyer):
6.1 Compliance with Agreement. Seller shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
6.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Seller and the Company in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to Buyer and
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Buyer's counsel, and Seller shall have made available to Buyer for examination
the originals or true and correct copies of all documents that Buyer may
reasonably request in connection with the transactions contemplated by this
Agreement.
6.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
6.4 Representations and Warranties. The representations and warranties
made by Seller in this Agreement shall be true and correct as of the Closing
Date with the same force and effect as though such representations and
warranties have been made on the Closing Date, except as otherwise contemplated
hereby and except to the extent that such representations and warranties were
made as of a specified date and as to such representations and warranties the
same shall continue on the Closing Date to have been true and correct as of the
specified date.
6.5 Closing Under the Rockwood Casualty Purchase Agreement. The closing
shall have occurred under that certain Stock Purchase Agreement (the "Rockwood
Casualty Purchase Agreement") among PIC Insurance Group, Inc. and Trirock
Limited Partnership, as sellers, and Front Royal, Inc., as buyer, dated as of
December 6, 1996, for the acquisition by Front Royal, Inc. of the stock of
Rockwood Casualty Insurance Company ("Rockwood").
6.6 Additional Deliveries at Closing. Seller shall have, or shall cause to
have, delivered to Buyer (a) certificates representing the Purchased Stock,
accompanied by stock powers duly endorsed in blank, with all required transfer
taxes or stamps paid for or affixed thereto, free and clear of all Liens, and
(b) the following documents, each duly executed and delivered and dated as of
the Closing Date: (i) the Opinion of Seller's Counsel; (ii) the Seller's Closing
Certificate; (iii) the Surplus Certificate; and (iv) the Non-Compete and
Non-Solicitation Agreement.
6.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies with jurisdiction over
Seller, the Company or Buyer to permit the sale of the Purchased Stock and the
other transactions contemplated hereby shall have been obtained and shall remain
in full force and effect (without any material term, condition or restriction
that is reasonably unacceptable to Buyer).
6.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the
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aggregate, have a Material Adverse Effect with respect to the Company.
6.9 Resignation of Directors and Officers. Each member of the Board of
Directors and each officer of the Company shall have resigned from such
positions effective on the Closing Date.
6.10 Assets. The Company shall have Four Million Dollars ($4,000,000) of
assets in the form of cash or cash equivalents as of the Closing Date.
6.11 Reserves and Liabilities. The Company shall have no Reserves or
liabilities as of the Closing Date.
6.12 Policyholders' Surplus. The Surplus shall be equal to or greater than
Four Million Dollars ($4,000,000) as of the Closing Date.
6.13 Books and Records. Seller shall have delivered to Buyer all minute
books, stock records and other corporate and financial records of the Company.
6.14 Reinsurance. Seller and/or Front Royal Insurance Company ("FRIC") or
another insurer reasonably satisfactory to Buyer shall have assumed or reinsured
all of the insurance business written by the Company, pursuant to an agreement
in form and substance reasonably satisfactory to Buyer, to the extent necessary
Seller and/or FRIC shall have established a cash collateral account for such
transaction equal to 100%, or such lesser percentage as may be appropriate in
light of the assumption or reinsurance arrangement, of the loss, loss adjustment
and unearned premium reserves for the business subject to the transaction, and
the Company shall have transferred to Seller and/or FRIC or other satisfactory
insurer an amount equal to such Reserves for such business.
ARTICLE VII
CONDITIONS PRECEDENT TO
THE OBLIGATIONS OF SELLER
Each and every obligation of Seller to be performed on the Closing Date
shall be subject to the satisfaction prior to or at the Closing of the following
express conditions precedent (it being the understanding of the parties that any
of such conditions, except as set forth in Sections 7.7 [Regulatory Approvals],
may be waived by Seller):
7.1 Compliance with Agreement. Buyer shall have performed and complied in
all material respects with all of its obligations under this Agreement that are
to be performed or complied with by it prior to or on the Closing Date.
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7.2 Proceedings and Instruments Satisfactory. All proceedings, corporate
or other, to be taken by Buyer in connection with the transactions contemplated
by this Agreement, and all documents incident thereto, shall be reasonably
satisfactory in form and substance to Seller and Seller's counsel, and Buyer
shall have made available to Seller for examination the originals or true and
correct copies of all documents that Seller may reasonably request in connection
with the transactions contemplated by this Agreement.
7.3 No Litigation. No investigation, suit, action or other proceeding
shall be threatened or pending before any court or governmental agency that
seeks restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby.
7.4 Representations and Warranties. The representations and warranties
made by Buyer in this Agreement shall be true and correct in all material
respects as of the Closing Date with the same force and effect as though such
representations and warranties had been made on the Closing Date, except as
otherwise contemplated hereby and except to the extent that such representations
and warranties were made as of a specified date and as to such representations
and warranties the same shall continue on the Closing Date to have been true and
correct as of the specified date.
7.5 Closing Under Rockwood Casualty Purchase Agreement. The closing shall
have occurred under the Rockwood Casualty Purchase Agreement for the acquisition
by Front Royal, Inc. of the stock of Rockwood.
7.6 Additional Deliveries at Closing. Buyer shall have, or shall cause to
have, delivered to Seller (a) the Cash Payment, and (b) the following documents,
each duly executed and delivered and dated as of the Closing Date: (i) the
Opinion of Buyer's Counsel; and (ii) the Buyer's Closing Certificate.
7.7 Regulatory Approvals. All required authorizations, registrations and
approvals from federal and state regulatory agencies and from any foreign
regulatory agencies, in either case with jurisdiction over Seller, the Company
or Buyer to permit the sale of the Purchased Stock and the other transactions
contemplated hereby shall have been obtained and shall remain in full force and
effect (without any material term, condition or restriction that is reasonably
unacceptable to Seller).
7.8 Consents. There shall have been obtained written consent with respect
to any contract which requires any third party consent due to the consummation
of the transactions contemplated by this Agreement except for such consents the
failure of which to obtain would not, individually or in the aggregate have a
Material Adverse Effect with respect to Buyer.
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ARTICLE VIII
CERTAIN ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Records. Buyer shall preserve and keep, free of charge, all books,
papers and records included in the assets of the Company relating to their
respective businesses for periods prior to the Closing Date for a period of not
less than five years following the Closing Date; provided, however, prior to the
fifth year following the Closing Date, Buyer may destroy such materials if Buyer
provides Seller 30 Business Days' prior notice that Buyer intends to destroy any
or all of such books, papers and records and Seller shall have the right to
review and remove any books, papers and records to be destroyed at Seller's
expense. Buyer agrees to permit Seller and its attorneys, accountants, agents
and designees access to such books, papers and records from and after the
Closing Date for all reasonable purposes. Any such examination shall be at the
expense of Seller, shall be performed at the place such books, papers and
records are regularly maintained and shall not unreasonably interfere with
Buyer's or the Company's normal business activities.
8.2 Access. Buyer and Seller and each of their authorized agents, officers
and representatives shall have reasonable access to the properties, books,
records, contracts, information and documents of the Company and each other to
conduct such examinations and investigations of its or their business as it
deems necessary, provided that such examinations and investigations: (a) shall
be germane to rights or obligations arising out of this Agreement, the
operations of the Company prior to the Closing Date or to the transactions
occurring between the Company and any Affiliates prior to the Closing Date; (b)
shall be conducted only in the presence of a designated representative of Buyer
or Seller, as appropriate; (c) shall be during normal business hours; (d) shall
not unreasonably interfere with operations and activities; and (e) shall be
subject to prior approval if the information or documents requested are, in the
reasonable opinion of an officer, of a nature that may compromise the
competitive position of Buyer or Seller. Buyer and Seller shall cooperate in all
reasonable respects with each other's examinations and investigations.
8.3 Cooperation. Buyer and Seller will cooperate in all respects in
connection with the giving of any notices to any governmental authority or
self-regulatory organization or securing the permission, approval,
determination, consent or waiver of any governmental authority or other party
required in connection with the consummation of the transactions contemplated
under this Agreement. Buyer promptly will furnish to Seller copies of the Forms
A filed with the Department and all correspondence with the Department with
respect thereto.
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8.4 Confidentiality. Following the Closing, Seller shall keep confidential
all information concerning the business, operations, properties, assets and
financial affairs of the Company and may disclose such information only upon
receipt of prior written consent from Buyer, as required by law, or if such
disclosure is required (a) in connection with Seller's filing of any state or
federal income tax returns, (b) in connection with filings made with the
Securities and Exchange Commission or any national securities exchange or (c) by
order of any judicial or administrative authority, provided, however, Seller
shall not be required to keep confidential information that (x) is or becomes
generally available to the public other than as a result of disclosure by
Seller, (y) is or becomes available to Seller on a nonconfidential basis from a
source other than Buyer, or (z) Seller or any of their Affiliates is required to
disclose pursuant to applicable law, rule, regulation or subpoena.
8.5 Use of Name. From and after the Closing Date, neither Seller nor any
of its Affiliates shall use the names "Xxxxxxxx" or any names similar thereto or
variants thereof in connection with the casualty insurance business.
8.6 Non-Solicitation of Employees. Seller hereby agrees that for a period
commencing on the Closing Date and ending three years thereafter, neither Seller
nor any of its Affiliates shall solicit for employment by Seller or any of its
Affiliates any employees of Buyer.
ARTICLE IX
TAX LOSSES
9.1 Federal Income Taxes in General.
(a) Taxable Periods Ending On or Before the Closing Date.
(i) The income and other tax items of the Company for all
periods ending on or before the Closing Date shall be included in
the consolidated federal income tax return of the affiliated group
of which Front Royal is the common parent (the "Company Group"), and
the last such period will end as of the close of the Closing Date.
Seller and Front Royal shall be responsible for the payment of any
federal income taxes of the Company for all periods ending on or
before the Closing Date and of any other member of the Company Group
not heretofore paid except for such taxes set forth in the Statutory
Statements or in Schedule 3.18 of the Disclosure Schedule of Seller.
Neither Buyer, any member of the affiliated group of which Buyer is
a member (the "Buyer Group") nor the Company shall be required to
reimburse either Seller or any other person for any such taxes; and
subject to the Seller's Basket, Seller and Front Royal shall
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indemnify and hold Buyer, all other members of the Buyer Group and
the Company harmless from all liabilities for any such taxes
(including, without limitation, any additions to tax, penalties and
interest). Seller shall be entitled to any refunds (except any
refund resulting from carrybacks from taxable periods beginning
after the Closing Date) not received prior to the Closing Date for
taxable periods of the Company ending on or before the Closing Date.
Buyer shall promptly pay, or cause Company to pay, to Seller the
amount of any such refund (to which Seller is entitled hereunder)
that is received by the Company or Buyer; provided, however, that
any amount payable in respect of any such refund shall be reduced by
the amount of any taxes incurred, and the present value (based on a
discount rate of 5%) of any taxes to be incurred, by Buyer, any
other member of the Buyer Group or the Company as a result of the
accrual or receipt of the refund.
(ii) Subject to the Basket and the Cap, Seller shall indemnify
and hold Buyer, all members of the Buyer Group and the Company
harmless from all liabilities for any Tax Losses. To the extent that
any breach by Seller of the representations and warranties contained
in Section 3.18 results in any Tax Losses, such breach shall be
subject to the terms and provision of this Article IX and the
indemnification provisions relating hereto.
(b) Taxable Periods Beginning After the Closing Date. Buyer and the
Company shall be responsible for and, subject to the Basket, shall
indemnify and hold Seller harmless from all federal income taxes (except
taxes resulting from any adjustments to or changes in tax items relating
to any taxable period ending on or before the Closing Date) of the Company
for any taxable period beginning after the Closing Date. Buyer and the
Company shall be entitled to all refunds of such taxes.
9.2 Other Income Taxes.
(a) Definition. For purposes of this Article IX, the term "state,
local or foreign income tax" means any tax, however denominated, that is
based on or measured by net or gross income and imposed by any state,
local or foreign governmental entity, but does not include gross or net
premium taxes.
(b) Taxable Periods Ending On or Before the Closing Date. With
respect to taxable periods of the Company ending on or before the Closing
Date, Seller shall prepare and file returns for and shall be responsible
for the payment of any state, local or foreign income taxes of the Company
not paid prior to the Closing Date. Neither Buyer, any member of the Buyer
Group, nor the Company shall be required to reimburse either Seller or any
other person for any such taxes; and subject to the Seller's Basket,
Seller shall indemnify and hold Buyer, all other members of the Buyer
Group and the Company harmless from all liabilities for any such taxes
(including, without limitation, any additions
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to tax, penalties and interest) of the Company and of any other
corporation with which the Company files or have filed a unitary,
consolidated or combined return. Seller shall be entitled to refunds
(except any refund resulting from carrybacks from taxable periods
beginning after the Closing Date) not received prior to the Closing Date
for taxable periods of the Company ending on or before the Closing Date.
Buyer shall promptly pay, or cause the Company to pay, to Seller the
amount of any such refund (to which Seller is entitled hereunder) that is
received by the Company or Buyer; provided, however, that any amount
payable in respect of any such refund shall be reduced by the amount of
any taxes incurred and the present value (based on a discount rate of 5%)
of any taxes to be incurred, by Buyer, any other member of the Buyer Group
or the Company as a result of the accrual or receipt of the refund.
(c) Taxable Periods Beginning After the Closing Date. Buyer and the
Company shall be responsible for and, subject to the Basket, shall hold
Seller harmless from all state, local or foreign income taxes (except
taxes resulting from any adjustments to or changes in tax items relating
to a taxable period ending on or before the Closing Date) of the Company
for any taxable period beginning after the Closing Date. Buyer and the
Company shall be entitled to all refunds of such taxes.
(d) Taxable Periods Covering Days Before and After the Closing Date.
If the Company is required to file a state, local or foreign income tax
return for a taxable period covering days before and after the Closing
Date, Buyer shall cause the return for such period to be prepared and
filed. Buyer and the Company, on the one hand, and Seller, on the other
hand, shall each be responsible for the payment of state, local or foreign
income taxes for any such period based on the allocation of income and
expenses to the periods before and after the Closing Date, respectively,
as set forth below. The total state, local or foreign income taxes for the
taxable period shall be allocated among Buyer and the Company, on the one
hand, and Seller, on the other hand, using the following methodology:
Buyer and the Company shall be liable for an amount equal to such total
taxes multiplied by a fraction, the numerator of which is the taxable
income of the Company calculated from the beginning of the period through
the Closing Date (based on actual closing of the books of the Company, or
if not feasible, based upon a pro forma closing of the books) and the
denominator of which is the total taxable income of the Company calculated
for the entire period; Seller shall be liable for the balance of such
state, local or foreign taxes. Each of Buyer and the Company, on the one
hand, and Seller, on the other, shall be entitled to all refunds of such
taxes based on the foregoing methodology.
(e) Subject to the Seller's Basket, Seller shall indemnify and hold
Buyer, all members of the Buyer Group and the Company harmless from all
liabilities for any Tax Losses.
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9.3 Cooperation
(a) Buyers' Obligation to Cooperate. Buyer agrees to cooperate and
to cause the Company to cooperate with Seller to the extent reasonably
required after the Closing Date in connection with (i) the preparation,
filing, amendment and execution of all income tax returns and other tax
documents with respect to any taxable period of the Company ending on or
before the Closing Date, (ii) contests concerning the application of any
tax or the tax due for any such period and (iii) audits and other
proceedings conducted by taxing authorities with respect to any such
period. Buyer shall retain or cause the Company for all taxable periods
and portions thereof ending on or before Closing Date (except for books or
records not in the possession of the Company) until the expiration of the
applicable statute of limitations (giving effect to any and all extensions
and waivers) and to abide by, or cause compliance with, all record
retention agreements entered into by or on behalf of the Company with any
taxing authority.
(b) Seller' Obligation to Cooperate. Seller agree to make available
to Buyer and the Company, records in the custody of either Seller or any
other member of the Company Group, to furnish other information
(including, without limitation, all adjustments to and changes in tax
items of the Company for taxable periods ending on or before the Closing
Date), and otherwise to cooperate to the extent reasonably required for
the preparation or filing of tax returns and other tax documents relating
to the Company for taxable periods ending after the Closing Date. Seller
shall retain all books and records pertinent to the Company for all
taxable periods and portions thereof ending on or before the Closing Date
(except for books or records not in the possession of Seller or any other
member of the Company Group) until the expiration of the applicable
statute of limitations (giving effect to any and all extensions and
waivers) and shall abide by, or cause compliance with, all records
retention agreements entered into by or on behalf of the Company with any
taxing authority.
(c) Changes to Certain Tax Items of the Company. Except as may be
required by law or in Section 9.3(d), no amended tax return shall be
filed, no change in any tax accounting method shall be made, and not tax
election shall be made or revoked by, on behalf of, or with respect to the
Company for any taxable period ending on or before the Closing Date
without the express written consent of Seller, on the one hand, and Buyer,
on the other hand.
(d) Entitlement to Certain Tax Benefits. Seller acknowledges that
the Company and Buyer shall be entitled to the tax benefit of any loss,
credit or other item of the Company that (i) has arisen or arises before
the Closing Date but cannot be used in a taxable period ending on or
before the Closing Date and
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therefore is reportable in or carried forward to a taxable period ending
after the Closing Date or (ii) arises after the Closing Date, although
such loss, credit or their item may be carried back to a taxable period
ending on or before the Closing Date; provided, however, that
(notwithstanding any provision of this Agreement) no such carryback to a
taxable period ending on or before the Closing Date shall be made without
Seller's consent, which consent shall not be unreasonably withheld.
Seller's consent will be considered reasonably withheld if a proposed
carryback may have an adverse effect on either Seller's tax position for
any past or current taxable period. Seller promptly shall pay or cause to
be paid to Buyer (i) any amount received as a refund and (ii) if not
realized as a refund, the amount of any reduction in tax liability (of the
Company, Seller or any other member of the Company Group) resulting from
the use of any loss, credit or other item carried back from a taxable
period beginning after the Closing Date to a period ending on or before
the Closing Date; provided, however, that the amount so payable by Seller
shall be reduced by the amount of any taxes incurred, and the present
value (based on a discount rate of 5%) of any taxes to be incurred, by
Seller or any other member of the Company Group as a result of the accrual
or receipt of any such refund.
(e) Tax Contests. If any party to this Agreement receives any
written notice from any taxing authority proposing an adjustment to any
tax for which any other party hereto may be obligated to indemnify under
this Agreement, within ten business days thereafter such party shall give
to the others written notice thereof that describes such proposed
adjustment in reasonable detail, and shall indicate the amount (estimated,
if necessary) of the increase in tax that may be suffered by Buyer, Seller
or the Company, as the case may be. The failure to give notice pursuant to
this Section 9.3 (e), however, shall not reduce the obligations of a party
hereunder unless, and then only to the extent, such failure prejudices the
rights of the other party to contest such tax adjustment. Seller and Front
Royal, Inc., including their duly appointed representative, shall be
responsible for defending against (and shall have the right to negotiate,
resolve, settle or contest) any claim for a tax liability against the
Company made by any taxing authority for any taxable period, or portion
thereof, ending on or before the Closing Date; provided, however, that
Seller shall keep Buyer advised of the status (and any change in status)
of such claims. The foregoing notwithstanding, without Buyer's prior
written consent, Seller shall not enter into any agreement that would
adversely affect Buyer or the Company (including, without limitation,
liability for taxes with respect to taxable periods ending after the
Closing Date), except for adverse effects that are included in tax
liabilities subject to indemnification pursuant hereto. In the event Buyer
does not consent to a settlement agreement recommended by Seller with
respect to any tax liabilities, then the aggregate amount of the
indemnification payable by Seller in connection with such tax liabilities
shall
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not exceed the amount that would otherwise have been payable had Seller so
entered into such settlement agreement. Buyer shall within 14 days after
it has knowledge of the assertion or commencement thereof notify Seller of
the written assertion of any claim or the commencement of any suit,
action, proceeding, investigation or audit (any of the foregoing, a
"Contest") that could give rise to any tax liabilities subject to
indemnification hereunder, and shall provide Seller with copies (subject
to deletion of unrelated information) of all correspondence relating to
such Contest. Each party shall bear its own costs of defending against
such Contest.
9.4 Termination of Tax-Sharing Agreements. As of the Closing Date
(provided Closing occurs), the provisions of this Agreement supersede any and
all tax-sharing or similar agreements to which (i) the Company and (ii) Seller
or any affiliate of Seller are parties. Neither the Company nor Seller (or any
affiliate of either Seller) shall have any obligation or right with respect to
each other under any such agreement after the Closing.
ARTICLE X
INDEMNIFICATION
10.1 Survival of Representations and Warranties. The right to enforce
claims for breaches of representations, warranties, covenants and agreements of
Seller, on the one hand, and Buyer, on the other hand, contained in this
Agreement and the respective obligations of the parties with respect thereto,
shall survive the making of this Agreement, any investigations made by or on
behalf of the parties hereto and the Closing Date, and shall continue in full
force and effect until the expiration of thirty (30) months from the Closing
Date, except:
(i) with respect to Section 3.18 [Taxes], 3.22 [Employee Benefit
Matters] and Article IX, the remedy for breach of which shall continue in
full force and effect until any claims or liabilities with respect thereto
shall be barred by the expiration of the applicable statute of limitations
or any extensions thereof; and
(ii) with respect to Section 3.4 [Title to Shares] and Section 3.7
[Capitalization] and the indemnification provided pursuant to Sections
10.2(c) and 10.3(c), to which there shall be no expiration).
All such representations and warranties and liabilities shall expire and
terminate at the time provided for above, except for any claims relating to any
specific breaches of any representations or warranties which are asserted in
writing on or
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before the applicable termination date. Each of the parties agrees to give
notice to the breaching party of any breach of any such representation,
warranty, covenant, or agreement, describing such breach in reasonable detail,
as soon as practicable after the discovery thereof; provided, however, that the
failure to receive such notice shall not relieve the breaching party from any
liability in respect to such breach unless and to the extent that the breaching
party shall be prevented from curing such breach as a direct result of its
failure to receive a timely notice. Any claim for indemnification for which
notice has been given within the prescribed period may be prosecuted to
conclusion notwithstanding the subsequent expiration of such period.
10.2 Indemnification by Seller. After the Closing Date and subject to the
limitations set forth below, including without limitation the limitations
described in Section 10.4, Seller agrees to and does hereby indemnify and hold
Buyer and its Affiliates, officers, directors and employees harmless against any
claims, suits, losses, expenses, damages, obligations, liabilities (including
costs and reasonable attorneys' fees) (hereinafter referred to collectively as
"Losses") which result from or are related to any of the following:
(a) any breach or failure of Seller to perform any of its covenants
or agreements set forth herein;
(b) the inaccuracy of any representation or warranty made herein by
Seller;
(c) any liabilities of Seller or its Affiliates (other than the
Company), except for (i) those liabilities incurred pursuant to this
Article X or (ii) liabilities of Seller or its Affiliates which are
actually the primary obligation of the Company; or
(d) claims under Article IX.
10.3 Indemnification by Buyer. After the Closing Date, and subject to the
limitations set forth below, including, without limitation, the limitations
described in Section 10.4, Buyer agrees to and does hereby indemnify and hold
Seller and its Affiliates, officers, directors and employees harmless against
any Losses, which result from or are related to any of the following:
(a) any breach or failure of Buyer to perform any of its covenants
or agreements set forth herein;
(b) the inaccuracy of any representations or warranties made herein
by Buyer;
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(c) any liabilities of Buyer or its Affiliates (other than the
Company), except for those liabilities of Buyer or its Affiliates incurred
pursuant to this Article X; or
(d) the conduct of the Company's business after the Closing Date.
10.4 Limitation of Liability. Subject to the sentence immediately
following, Buyer shall not have any liability to indemnify Seller in respect of
Losses incurred by Seller pursuant to Sections 10.3(a) and (b), and Seller shall
not have any liability to indemnify Buyer in respect of Losses incurred by Buyer
pursuant to Section 10.2(a) and (b), in either case unless and until the
aggregate amount of such Losses exceeds $25,000 (such amount being the
"Basket"), in which event the party seeking indemnity may recover the full
amount of such Losses, other than the Basket, provided that recovery by Buyer,
on the one hand, or Seller, on the other hand, in respect of such Losses shall
be limited to $3,500,000 (such amount being the "Cap"). Notwithstanding the
foregoing, (i) Buyer may recover all Losses whenever incurred by the Buyer
pursuant to Section 10.2(c) without regard to the 30-month limitation set forth
in Section 10.1 or the Cap referenced above, (ii) Buyer may recover all Losses
incurred as a result of a breach of the representation, warranty, covenant or
agreement set forth in Sections 3.13 [Transactions with Interested Persons],
5.1(d) [Carry on in Regular Course - payment of dividends], and 5.2
[Indebtedness] without regard to the Basket, and (iii) Seller may recover all
Losses whenever incurred pursuant to Section 10.3(c) and (d) without regard to
the 30-month limitation set forth in Section 10.1 or the Cap.
10.5 Notice of Indemnity Claims. If a party intends to assert a claim for
indemnification (an "Indemnified Party") under this Article X (an "Indemnity
Claim"), the Indemnified Party shall promptly provide notice of such Indemnity
Claim, to the party from whom indemnification is sought (the "Indemnifying
Party") (and in any event within fifteen (15) days after becoming aware of such
Indemnity Claim). The failure to receive such notice shall not relieve the
Indemnifying Party from any liability in respect of such claim unless and to the
extent that the Indemnifying Party shall be prevented from curing such situation
as a direct result of its failure to receive timely notice. At the time the
Indemnity Claim is made and thereafter, the Indemnified Party shall provide the
Indemnifying Party with copies of any materials in its possession describing the
facts or containing information providing the basis for the Indemnity Claim. If
the Indemnity Claim involves a claim by a third party (a "Third Party Indemnity
Claim"), the Indemnifying Party may assume and control at its expense the
defense of the claim by the third party, provided that the Indemnifying Party
agrees in writing with respect to such Third Party Indemnity Claim that it is
obligated hereunder to indemnify and hold the Indemnified
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Party harmless in accordance with the terms of this Article X; and provided,
further, that the Indemnified Party shall be entitled to participate in the
defense of such claim at its own expense. The failure of the Indemnifying Party
to assume the defense of any such claim shall not affect any indemnification
obligation under this Agreement.
Neither an Indemnified Party nor an Indemnifying Party shall settle a
claim, suit, action or proceeding without the consent of the other party, which
shall not unreasonably be withheld. A party shall not be liable under this
Article X for any such settlement effected without its consent. In the event an
Indemnified Party fails to consent to a settlement of a Third Party Claim
recommended by the Indemnifying Party, then the amount of indemnification
payable with respect to such Third Party Claim shall not exceed the amount of
such settlement offer plus all Losses incurred with respect to such claim prior
to the date the Indemnified Party rejected the settlement offer.
10.6 Indemnity Amounts to be Computed on After-Tax Basis. The amount of
any indemnification payable under any of the provisions of this Article X shall
be (a) net of any federal or state income tax benefit realized or the
then-present value (based on a discount rate of 5%) of any such income tax
benefit to be realized by the Indemnified Party (or, where Buyer is the
Indemnified Party, the Company) by reason of the facts and circumstances giving
rise to the indemnification, and (b) increased by the amount of any federal or
state income tax required to be paid by the Indemnified Party on the accrual or
receipt of the indemnification payment. For purposes of the preceding sentence,
the amount of any state income tax benefit or cost shall take into account the
federal income tax effect of such benefit or cost.
10.7 Arbitration. Any dispute arising between the parties hereto as to any
matter covered by this Agreement, including any claim for indemnification
pursuant to Section 10.2 or 10.3, shall be submitted to arbitration in the
following manner:
(a) The party desiring to submit such controversy to arbitration
shall give to the other party notice in writing, stating with specificity
the matter upon which arbitration is sought. The written notice shall also
name the arbitrator selected by such party, which arbitrator shall be a
present or retired insurance company executive unaffiliated with such
party.
(b) Within ten Business Days following the receipt of such notice,
the other party shall give written notice to the party desiring
arbitration of the arbitrator selected by it, which second arbitrator
shall likewise be a present or retired insurance company executive
unaffiliated with such party.
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(c) Upon the appointment of the second arbitrator, the two
arbitrators so chosen shall select a third arbitrator, which third
arbitrator shall likewise be a present or retired insurance company
executive unaffiliated with such party.
(d) The three arbitrators thus chosen shall give to each of the
parties hereto written notice of the time and place of hearing, which
hearing shall be held in Richmond, Virginia not less than ten Business
Days, nor more than 20 Business Days, after the selection of the third
arbitrator.
(e) At the time and place (in Richmond, Virginia) appointed, the
three arbitrators shall proceed with the hearing unless for some good
cause, of which a majority of the arbitrators shall be the judge, it shall
be postponed until some other day within a reasonable time. The parties
hereto shall have full opportunity to be heard on any question thus
submitted.
(f) The arbitrators shall be relieved of following judicial
formalities and the rules of evidence shall not apply to such hearing. The
determination by a majority of the arbitrators shall be made in writing
and a copy thereof delivered to each of the parties hereto. The
arbitrators shall in every case deliver their decision within 60 days
after the hearing, unless the parties shall otherwise agree to extend the
time. Unless the arbitrator determines otherwise, all costs and expenses
of arbitration and the reasonable legal fees and disbursements of the
prevailing party shall be paid by the other party.
(g) The determination of the arbitrator in any arbitration
proceeding hereunder shall bind Buyer and Seller, provided that each
received notice of such proceeding and the opportunity to participate
therein and shall be final and unappealable.
(h) Any award, judgment, or determination of the arbitrators
hereunder may be entered for enforcement in the any court of general
jurisdiction located in Richmond, Virginia, or in the United States
District Court for the Eastern District of Virginia, and each of the
parties hereto consents to venue and the personal jurisdiction of such
courts in connection with any such entry and enforcement.
10.8 Remedies Cumulative. Each indemnified party shall be entitled to the
indemnification provided in this Article X from time to time and shall be
entitled to rely upon one or more provisions of this Agreement without waiving
its right to rely upon any other provision at the same time or at any other
time.
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ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing as follows:
(a) by mutual written consent of Buyer and Seller;
(b) by Buyer or Seller, if the Closing Date shall not have occurred
on or before December 31, 1997 (provided that the right to terminate this
Agreement under this Section 11.1(b) shall not be available to any party
whose failure to fulfill any obligation under this Agreement has been the
cause of or has resulted in the failure of the Closing Date to occur on or
before such date);
(c) by Buyer or Seller, if any court of competent jurisdiction in
the United States or other United States governmental body shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the sale of the Purchased Stock and
such order, decree, ruling or other action shall have become final and
nonappealable;
(d) by Seller if (i) Seller receives an unsolicited written proposal
or offer for the purchase of all or a substantial portion of the assets
of, or an equity interest in, the Company or any business combination with
the Company, (ii) notice thereof is delivered to Buyer, and (iii) Buyer
does not exercise the Option within fifteen (15) days after such notice of
such offer is given to Buyer; or
(e) by Buyer or Seller if any of the applicable regulatory
authorities deliver final written disapproval of the transactions
contemplated hereby.
11.2 Effect of Termination. If this Agreement is terminated pursuant to
Section 11.1, all further obligations of the parties under or pursuant to this
Agreement shall terminate without further liability of either party to the other
than any provision of this Agreement that specifically sets forth that it is to
so survive.
11.3 Extension; Waiver. At any time prior to the Closing, the parties may
(a) by mutual consent extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document, certificate or writing delivered pursuant hereto or (c) waive
compliance with any of the agreements or conditions contained herein; provided,
however, any party that knowingly waives any representation, warranty, agreement
or condition with respect to another party
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under subsection (b) and (c) shall thereafter be barred from seeking
indemnification from such other party for such waived breach of any
representation, warranty, agreement or condition. Any agreement on the part of
any party to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party. Any agreement on the part
of any party to any such extension or waiver shall be valid only to set forth in
an instrument in writing signed on behalf of such party.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. This Agreement and the documents referred to herein
and to be delivered pursuant hereto constitute the entire agreement between the
parties pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, and there are no warranties, representations
or other agreements between the parties in connection with the subject matter
hereof, except as specifically set forth herein or therein.
12.2 Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, each of the parties hereto shall pay the fees and
expenses of their respective counsel, investment bankers, financial advisors,
accountants and other experts and the other expenses incident to the negotiation
and preparation of this Agreement and consummation of the transactions
contemplated hereby.
12.3 Governing Law. This Agreement shall be construed and interpreted
according to the laws of the Commonwealth of Virginia, without regard to the
conflicts of law rules thereof.
12.4 Assignment. This Agreement and each party's respective rights
hereunder may not be assigned at any time except as expressly set forth herein
without the prior written consent of the other party.
12.5 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and directors of each party to this Agreement shall take all
such necessary action. Seller and Buyer will execute, and Buyer shall cause the
Company to execute, any additional instruments necessary to consummate the
transactions contemplated hereby.
12.6 Notices. All communications, notices and disclosures required or
permitted by this Agreement shall be in writing and shall be deemed to have been
given (i) when delivered if
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delivered personally or by messenger or by overnight delivery service, or (ii)
three days after mailing when mailed by registered or certified United States
mail, postage prepaid, return receipt requested, or (iii) when received if sent
by telecopy (provided that a copy is mailed concurrently therewith pursuant to
the terms hereof), in all cases addressed to the person for whom it is intended
at its address set forth below or to such other address as a party shall have
designated by notice in writing to the other party in the manner provided by
this Section 12.6:
If to Seller: Colony Insurance Company
c/o Front Royal, Inc.
0000 Xxxxxxx Xxxx.
Xxxxx 000
Xxxxxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: J. Xxxx Xxxxx
Chief Executive Officer
and
Xxxxx X. Xxxxx
Chief Financial Officer
Telecopier No.: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxxxxx Xxxxxx
Aronsohn & Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Telecopier No.: (000) 000-0000
If to Buyer: Fort Washington Holdings, Inc.
000 Xxxx Xxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxx Xxxxxxxxxx, Xxxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telecopier No.: (000) 000-0000
With a copy to: Dilworth, Paxson, Xxxxxx & Xxxxxxxx LLP
3200 Mellon Bank Center
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxxxxx X. XxXxxxxxx, Esq.
Telecopier No.: (000) 000-0000
12.7 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
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12.8 Interpretation. All references in this Agreement to contracts,
agreements, leases or other understandings or arrangements shall refer to oral
as well as written matters.
12.9 Severability. If any provision, clause or part of this Agreement, or
the application thereof under certain circumstances, is held invalid, the
remainder of this Agreement, or the application of such provision, clause or
part under other circumstances, shall not be affected thereby.
12.10 No Reliance. No third party is entitled to rely on any of the
representations, warranties and agreements contained in this Agreement, and
Seller, Buyer and the Company assume no liability to any third party because of
any reliance on the representations, warranties and agreements of Seller and
Buyer contained in this Agreement.
12.11 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of all of the parties. The requirements of this
Section 12.11 may not be waived.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
COLONY INSURANCE COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
Acknowledged and Agreed
as of the date first above
written with respect to
Article IX only
FRONT ROYAL, INC.
By:___________________________
Name:
Title:
-40-
Acknowledged and Agreed
as of the date first above
written with respect to
Article V only
XXXXXXXX INSURANCE COMPANY
By:___________________________
Name:
Title:
-00-
---------------------------------------------------------------------------------------------------------------------------------
XXXXX XX XXXXXXXX XXXXXXXX INSURANCE COMPANY
STATES
--------------------------------------------------------------------------------------------------
D.C. FLORIDA GEORGIA KENTUCKY MARYLAND MASS. MISSOURI S.C. TENN. VIRGINIA
---------------------------------------------------------------------------------------------------------------------------------
FIRE X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
ALLIED LINES X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
FARMOWNER MULTPLE PERIL X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
HOMEOWNER MULTPLE PERIL X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
COMMERCIAL MULTPLE PERIL X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
MORTGAGE GUARANTY
---------------------------------------------------------------------------------------------------------------------------------
OCEAN MARINE X X X X X
---------------------------------------------------------------------------------------------------------------------------------
INLAND MARINE X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL GUARANTY
---------------------------------------------------------------------------------------------------------------------------------
MEDICAL MALPRACTICE X X X
---------------------------------------------------------------------------------------------------------------------------------
EARTHQUAKE X X
---------------------------------------------------------------------------------------------------------------------------------
GROUP ACCIDENT & HEALTH
---------------------------------------------------------------------------------------------------------------------------------
CREDIT ACCIDENT & HEALTH
---------------------------------------------------------------------------------------------------------------------------------
OTHER ACCIDENT & HEALTH X X X
---------------------------------------------------------------------------------------------------------------------------------
WORKERS' COMPENSATION X X X X
---------------------------------------------------------------------------------------------------------------------------------
OTHER LIABILITY X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
PRODUCTS LIABILITY X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
AUTO LIABILITY X X X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
AUTO PHYSICAL DAMAGE X X X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
AIRCRAFT (ALL PERILS) X X X X X
---------------------------------------------------------------------------------------------------------------------------------
FIDELITY X X X X
---------------------------------------------------------------------------------------------------------------------------------
SURETY X X
---------------------------------------------------------------------------------------------------------------------------------
GLASS X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
BURGLARY & THEFT X X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
BOILER & MACHINERY X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
CREDIT X X X X X X
---------------------------------------------------------------------------------------------------------------------------------
OTHER (A) (B)(C)(D)(E) (F) (A)(B)(D)(E)(F) (C)(F)(G)(H)
x x x X X
---------------------------------------------------------------------------------------------------------------------------------
(A) PERSONAL EFFECTS
(B) PERSONAL PROPERTY FLOATER
(C) SPRINKLER LEAKAGE
(D) ELEVATOR
(E) LIVESTOCK
(F) ANIMALS
(G) WATER DAMAGE
(H) HOME PROTECTION
(I) COMM'L AUTO ONLY
(J) HOME WARRANTIES
(K) SPRINKLER LEAKAGE
(L) TITLE INSURANCE
SERVICES AGREEMENT
This Agreement, entered into as of the 12th day of December, 1994, between
Colony Management Services, Inc., a Virginia corporation, and Colony Insurance
Company, a Virginia corporation, supersedes and voids any and all prior
agreements for services between these parties. Witness that in consideration of
the covenants and promises set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Colony Management Services, Inc. shall provide various services to
Colony Insurance Company, but not limited to management, administration, claims,
operations, accounting and personnel, the nature, type and extent of such
services to be those as may be agreed upon between the parties from time to
time.
2. In consideration of its services pursuant to this Agreement, Colony
Management Services, Inc. shall receive as compensation from Colony Insurance
Company payable monthly, reimbursement for said services at an amount which
approximates their cost.
3. Colony Management Services, Inc. shall indemnify and hold Colony
Insurance Company harmless of and from all claims, causes of action, liability,
damages and expenses arising out of or in connection with any error or omission
of Colony Management Services, Inc., its employees or agents, in the performance
of such services pursuant to this Agreement.
4. The term of this Agreement is continuous, subject to termination by
either party, without cause, upon 120 days written notice received prior
thereto.
5. Nonetheless, Colony Insurance Company, being at risk and having
ultimate control and responsibility for the functions delegated to Colony
Management Services, Inc., at
times shall have the ultimate authority with respect to all matters pertaining
to the general welfare of Colony Insurance Company.
6. It is understood that all books and records maintained for Colony
Insurance Company are the sole property of Colony Insurance Company and if this
Agreement is terminated for whatsoever reason, Colony Management Services, Inc.
shall promptly deliver all such books and records to Colony Insurance Company.
7. It is understood that Colony Insurance Company has custody of,
responsibility for, and control of all investments.
8. Although it is the intention of Colony Management Services, Inc. not to
collect premiums, such premiums collected by Colony Management Services, Inc.,
if any, will be held in a fiduciary capacity and paid over to Colony Insurance
Company at the end of each month.
COLONY MANAGEMENT SERVICES, INC. COLONY INSURANCE COMPANY
By:_________________________________ By:___________________________
Xxxxx X. Xxxxx Xxxx X. Xxxxxx
Treasurer President
-2-
SERVICES AGREEMENT
This Agreement, entered into as of the 12th day of December, 1994, between
Colony Management Services, Inc., a Virginia corporation, and Xxxxxxxx Insurance
Company, a Virginia corporation, supersedes and voids any and all prior
agreements for services between these parties. Witness that in consideration of
the covenants and promises set forth herein and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto
agree as follows:
1. Colony Management Services, Inc. shall provide various services to
Xxxxxxxx Insurance Company, but not limited to management, administration,
claims, operations, accounting and personnel, the nature, type and extent of
such services to be those as may be agreed upon between the parties from time to
time.
2. In consideration of its services pursuant to this Agreement, Colony
Management Services, Inc. shall receive as compensation from Xxxxxxxx Insurance
Company payable monthly, reimbursement for said services at an amount which
approximates their cost.
3. Colony Management Services, Inc. shall indemnify and hold Xxxxxxxx
Insurance Company harmless of and from all claims, causes of action, liability,
damages and expenses arising out of or in connection with any error or omission
of Colony Management Services, Inc., its employees or agents, in the performance
of such services pursuant to this Agreement.
4. The term of this Agreement is continuous, subject to termination by
either party, without cause, upon 120 days written notice received prior
thereto.
5. Nonetheless, Xxxxxxxx Insurance Company, being at risk and having
ultimate control and responsibility for the functions delegated to Colony
Management Services, Inc., at
all times shall have the ultimate authority with respect to all matters
pertaining to the general welfare of Xxxxxxxx Insurance Company.
6. It is understood that all books and records maintained for Xxxxxxxx
Insurance Company are the sole property of Xxxxxxxx Insurance Company and if
this Agreement is terminated for whatsoever reason, Colony Management Services,
Inc. shall promptly deliver all of such books and records to Xxxxxxxx Insurance
Company.
7. It is understood that Xxxxxxxx Insurance Company has custody of,
responsibility for, and control of all investments.
8. Although it is the intention of Colony Management Services, Inc. not to
collect any premiums, such premiums collected by Colony Management Services,
Inc., if any, will be held in a fiduciary capacity and paid over to Xxxxxxxx
Insurance Company at the end of each month.
COLONY MANAGEMENT SERVICES, INC. XXXXXXXX INSURANCE COMPANY
By:_________________________________ By:____________________________
Xxxxx X. Xxxxx Xxxx X. Xxxxxx
Treasurer President
-2-
TAX ALLOCATION AGREEMENT
BETWEEN
FRONT ROYAL, INC. (Parent company)
AND
COLONY INSURANCE COMPANY (Subsidiary Company)
THIS AGREEMENT, made as of the 12th day of December 1994 by and between
FRONT ROYAL, INC., a North Carolina corporation herein referred to as "FRONT
ROYAL", AND COLONY INSURANCE COMPANY, a Virginia corporation herein referred to
as "COLONY".
WITNESSETH:
1. FRONT ROYAL agrees to file a consolidated federal income tax return
including COLONY for the taxable year of 1994 and for each year thereafter for
which a consolidated return is filed. COLONY hereby authorizes and agrees to be
bound by the provisions of the consolidated return regulations found under
Internal Revenue Code Section (IRC) 1502.
2. The tax charge or tax refund to COLONY under this agreement shall be
the amount that COLONY would have paid or received if it had filed on a separate
return basis with the Internal Revenue Service.
In the event that COLONY has a tax liability on a separate company basis,
its taxes will be paid to FRONT ROYAL. In the event that COLONY has a refund of
taxes on a separate company basis, the amount will be received from FRONT ROYAL.
3. This agreement defines a separate return as a return completed by
COLONY as if it had filed as a separate corporation. However, any adjustments
which are deferred under consolidated tax reporting must be considered when
filing a separate return. This include items such as intercompany transactions.
4. Estimated income payments from COLONY to FRONT ROYAL are to be made
within fifteen days after the normal due dates as prescribed by the Internal
Revenue Service. If, however, the cumulative estimated income tax payments by
COLONY on any due date exceed the estimated cumulative tax liability of COLONY
at that date, FRONT ROYAL may return the net over-estimated payment to COLONY.
5. All settlements for income tax payment to FRONT ROYAL or refund to
COLONY shall be made within ninety days after the date of filing the
consolidated income tax return for each respective tax year.
6. If taxable income for any year is revised by the Internal Revenue
Service, the tax department for FRONT ROYAL, or other appropriate authority, a
recalculation of tax liability for all parties to this agreement shall be made.
7. This agreement shall be terminated if:
(a) The parties agree in writing to such termination.
(b) Membership in the affiliated group ceases or is terminated for
any reason whatsoever.
(c) The affiliated group fails to file a consolidated return for
any taxable year.
8. Notwithstanding the termination of this agreement, its provisions will
remain in effect, with respect to any period of time during the tax year in
which termination occurs, for which the income of the terminating party must be
included in the consolidated return.
9. This agreement shall not be assignable by any party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals of
the 12th day of December 1994.
(SEAL) FRONT ROYAL, INC.
By_________________________
___________________________
(SEAL) COLONY INSURANCE COMPANY
By_________________________
___________________________
-2-
TAX ALLOCATION AGREEMENT
BETWEEN
FRONT ROYAL, INC. (Parent company)
AND
XXXXXXXX INSURANCE COMPANY (Subsidiary Company)
THIS AGREEMENT, made as of the 12th day of December 1994 by and between
FRONT ROYAL, INC., a North Carolina corporation herein referred to as "FRONT
ROYAL", AND XXXXXXXX INSURANCE COMPANY, a Virginia corporation herein referred
to as "XXXXXXXX".
WITNESSETH:
1. FRONT ROYAL agrees to file a consolidated federal income tax return
including XXXXXXXX for the taxable year of 1994 and for each year thereafter for
which a consolidated return is filed. XXXXXXXX hereby authorizes and agrees to
be bound by the provisions of the consolidated return regulations found under
Internal Revenue Code Section (IRC) 1502.
2. The tax charge or tax refund to XXXXXXXX under this agreement shall be
the amount that XXXXXXXX would have paid or received if it had filed on a
separate return basis with the Internal Revenue Service.
In the event that HAMILTON has a tax liability on a separate company
basis, its taxes will be paid to FRONT ROYAL. In the event that HAMILTON has a
refund of taxes on a separate company basis, the amount will be received from
FRONT ROYAL.
3. This agreement defines a separate return as a return completed by
XXXXXXXX as if it had filed as a separate corporation. However, any adjustments
which are deferred under consolidated tax reporting must be considered when
filing a separate return. This include items such as intercompany transactions.
4. Estimated income payments from XXXXXXXX to FRONT ROYAL are to be made
within fifteen days after the normal due dates as prescribed by the Internal
Revenue Service. If, however, the cumulative estimated income tax payments by
HAMILTON on any due date exceed the estimated cumulative tax liability of
HAMILTON at that date, FRONT ROYAL may return the net over-estimated payment to
XXXXXXXX.
5. All settlements for income tax payment to FRONT ROYAL or refund to
XXXXXXXX shall be made within ninety days after the date of filing the
consolidated income tax return for each respective tax year.
6. If taxable income for any year is revised by the Internal Revenue
Service, the tax department for FRONT ROYAL, or other appropriate authority, a
recalculation of tax liability for all parties to this agreement shall be made.
7. This agreement shall be terminated if:
(a) The parties agree in writing to such termination.
(b) Membership in the affiliated group ceases or is terminated for
any reason whatsoever.
(c) The affiliated group fails to file a consolidated return for
any taxable year.
8. Notwithstanding the termination of this agreement, its provisions will
remain in effect, with respect to any period of time during the tax year in
which termination occurs, for which the income of the terminating party must be
included in the consolidated return.
9. This agreement shall not be assignable by any party.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals of
the 12th day of December 1994.
(SEAL) FRONT ROYAL, INC.
By_________________________
___________________________
(SEAL) XXXXXXXX INSURANCE COMPANY
By_________________________
___________________________
-2-
DISCLOSURE SCHEDULE 3.14 OF SELLER
Environmental Liability
-----------------------
Ceded reinsurance agreements:
Treaty # Program Reinsurers Effective Dates
-------- ------- ---------- ---------------
n/a CIC/FRIC Gulf Insurance Co. 8/01/95 - 8/01/96
UST
AR 2365 CIC/FRIC Chartwell, Signet Star, 8/01/96 - 8/01/97
UST Folksamerica, TIG,
Transatlantic Re,
Trenwick Am, Zurich Re
Non-Environmental Liability
---------------------------
See the following ceded reinsurance summary.
CEDED REINSURANCE CONTRACTS
COMMERCIAL (NON-ENVIRONMENTAL LIABILITY)
The following reinsurance ceded summary includes only two contracts
currently in force. Contract number 7679 (Liability, Property and Catastrophe
with General Reinsurance Corporation) and AR 2219 (Specialty Lines Casualty
Quota Share brokered through AON Re Inc.). See pages 7 and 8, respectively.
All other listed contracts have either expired or have been terminated.
Claims for reinsurance from losses occurring during the effective periods of
each agreement are still recoverable from reinsurers.
REINSURANCE CEDED Page 6
-----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
-------------- -------- --------- --------- ----- ------------
T 2132-04
7/1/90 Liability Excess of Loss 100,000 each occurrence 400,000 each occurrence 100% National Re
C 195-106
7/1/90 Liability Excess of Loss Nil 500,000 Xs 500,000 Xxxxxxxx Xxxxx
each occurrence U.S. Int'l Re - 20%
North Star - 20%
Great Lakes - 15%
Frankona - 15%
C 195-107
7/1/90 Liability Clash Nil 1,000,000 each Constitution Re - 25%
occurrence Philadelphia Re - 17.5%
Frankona - 10%
T 2132-04
7/1/91 Liability Excess of Loss 100,000 each occurrence 400,000 each occurrence 100% National Re
C 195-106
7/1/91 Liability Excess of Loss Nil 500,000 Xs 500,000 Xxxxxxxx Xxxxx
each occurrence North Star - 27.5%
Frankona - 27.5%
Great Lakes - 15%
C 195-107
7/1/91 Liability Clash Nil 1,000,000 Xs of 1,000,000 Constitution Re - 25%
each occurrence Nederlanose - 17.5%
North Star - 10%
Frankona - 10%
REINSURANCE CEDED Page 7
-----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
-------------- -------- --------- --------- ----- ------------
7679
7/1/92 Liability Excess of Loss 100,000 each occurrence 900,000 each occurrence 100% General Re
(250,000 after 12-31-95) (750,000 after 12-31-95)
and 2 Million Clash
Excess of 1 Million
Continuous until
Cancelled
10/1/93 As Above
Anniversary
7679
7/1/92 Property Excess of Loss 100,000 each occurrence 900,000 each risk As Above
As Above (250,000 after 12-31-95) (750,000 after 12-31-95)
1,800,000 each occ.
7679
7/1/92 Catastrophe Excess 500,000 or 15% of 95% of 3.5 Million As Above
Continuous until subject premium
Cancelled
7/1/anniversary
date
AR 2219
9/15/95 Specialty Lines Casualty Quota Share 20% 1,000,000 80% 1,000,000 AON Re Inc.
Casualty Business quota share quota share Chartwell Re - 20%
each claim and/or TIG Re -30%
each occurrence Zurich Re - 30%
REINSURANCE CEDED Page 8
-----------------
CONTRACT NO. LINE TYPE
& OF OF BROKER/LEAD
EFFECTIVE DATE BUSINESS AGREEMENT RETENTION LIMIT UNDERWRITERS
-------------- -------- --------- --------- ----- ------------
Continuous until
Cancelled
10/1 Anniversary date
JBW 2044
4/1/84 Investor Surety Quota Share Various 5% of up to $300,000 X.X. Xxxxxxxxx
Bonds Retrocession each bond Wood & Company
(5% of gross) Telect Insurance
Company, Ltd.
No. 1
11/1/84 to Investor Surety Quota Share Various 22 1/2% of up to $300,000 Employers Reinsurance
1/1/86 Bonds (Real Estate) Retrocession each bond Corp.
30% of assumed)
No. 2
5/1/84 to Investor Surety Quota Share Various 37 1/2% of up to $300,000 Employers Reinsurance
1/1/86 Bonds (Oil & Gas) Retrocession each bond Corp.
50% of assumed)
Unwritten Investors Surety Bonds Quota Share Various 10% to 33 1/3% of up to Xxxxx Xxxx
Retrocession $300,000 each bond Assurance, Ltd.
(10% to 33 1/3T of
xxxx)
XXXXXXXX INSURANCE COMPANY
STATUTORY FINANCIAL STATEMENTS
NOVEMBER 30, 1996
UNAUDITED
ANALYSIS OF ADMITTED ASSETS XXXXXXXX
---------------------------------------------- ----------
Cash and invested assets 12,549,300
Agents' balances 34,950
Funds held by reinsured companies 0
Reinsurance recoverable on paid loss/lae 102,420
Federal income tax recoverable
Accrued investment income 203,729
Intercompany receivables 56,640
Other assets (1,884)
----------
Totals 12,945,155
==========
LIABILITIES AND SURPLUS
----------------------------------------------
Net loss reserves 3,582,079
Net lae reserves 681,716
Accrued expenses 92,805
Federal income tax payable 131,978
Unearned premium 2,124,330
Funds held under reinsurance treaties 0
Provision for reinsurance
Excess statutory reserve 235,000
Intercompany payables 303,406
Other liabilities 10,029
----------
Total liabilities 7,161,343
Capital stock 1,500,000
Paid in capital 4,838,657
Unassigned surplus (554,846)
----------
Policyholders' surplus 5,783,812
----------
Totals 12,945,155
==========
STATEMENT AS OF SEPTEMBER 30, 1996 OF THE XXXXXXXX INSURANCE COMPANY
ANALYSIS OF ASSETS
(1) (2) (3) (4) (5)
Non-Ledger Incl. Assets Not Admtd
Excess of Market Incl.Excess of Net Admitted Previous Year
Ledger (or Amortized) Book Over Market Assets Ending
Assets Over Book Values (or Amort.Values) Cols.1+2-3) December 31,1995
-----------------------------------------------------------------------------------------------------------------------------------
1. Bonds 10,848,150 10,848,150 9,404,504
2. Stocks:
2.1 Preferred stocks
2.2 Common stocks
3. Mortgage loans on real estate
(a) First liens
(b) Other than first liens
4. Real Estate:
4.1 Properties occupied by the company
(less $_______ encumbrances)
4.2 Other properties
(less $_______encumbrances)
5. Collateral loans
6.1 Cash on hand and on deposit:
(a) Cash in company's office
(b) Cash on deposit 28,666 28,666 150,967
6.2 Short-term investments 1,563,959 1,563,959 1,586,134
7. Other invested assets
8. Aggregate write-ins for invested assets 12,440,775 (a) 12,440,775 11,141,605
8a. Subtotals, cash and invested assets
(Lines 1 through 8)
9. Agents' balances or uncollected premiums
(net as to commissions and dividends)
9.1 Premiums and agents' balances in course
of collection (after deducting ceded
reinsurance balances payable of $43,019) 9,976 8,400 1,576 (23,102)
9.2 Premiums, agents' balances and installments
booked but deferred and not yet due (after
deducting ceded reinsurance balances payable
of $__________)
9.3 Accrued retrospective premiums (after
deducting ceded reinsurance balances
payable of $__________)
10. Funds held by or deposited with
reinsured companies 179,570 179,570 131,000
11. Bills receivable, taken for premiums
12. Reinsurance recoverables on loss and
loss adjustment expense payments 128,557 128,557 152,595
13. Federal income tax recoverable
14. Electronic data processing equipment
15. Interest, dividends and real estate
income due and accrued 173,285 173,285 168,524
16. Receivable from parent, subsidiaries
and affiliates 32,441 32,441 81,266
17. Equities and deposits in pools
and associations
18. Amounts receivable relating to uninsured
accident and health plans
19. Other assets:
19.1 Equipment, furniture and supplies XXX XXX
19.2 Bills receivable, not taken for premiums XXX XXX
19.3 Loans on personal security, endorsed or not XXX XXX
20. Aggregate write-ins for other than invested assets 6,485 6,485 6,485
-----------------------------------------------------------------------------------------------------------------------------------
21. TOTALS (lines 8a through 20) 12,797,804 173,285 8,400 12,962,689 11,658,373
-----------------------------------------------------------------------------------------------------------------------------------
-2-
(1) (2) (3) (4) (5)
Non-Ledger Incl. Assets Not Admtd
Excess of Market Incl.Excess of Net Admitted Previous Year
Ledger (or Amortized) Book Over Market Assets Ending
Assets Over Book Values (or Amort.Values) Cols.1+2-3) December 31,1995
-----------------------------------------------------------------------------------------------------------------------------------
DETAILS OF WRITE-INS AGGREGATED AT LINE 8
FOR INVESTED ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
0801
0802
0803
0898 Summary of remaining write-ins for
Line 8 from overflow page
0899 TOTALS (Lines 0801 thru 0803 plus 0898)
(Line 8 above)
-----------------------------------------------------------------------------------------------------------------------------------
DETAILS OF WRITE-INS AGGREGATED AT LINE 20
FOR OTHER THAN INVESTED ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
2001 Contingent ceding commissions receivables 6,485 6,485 6,485
2002
2003
2098 Summary of remaining write-ins for
Line 20 from overflow page
2099 TOTALS (Lines 2001 thru 2003 plus 2098)
(Line 20 above) 6,485 6,485 6,485
-----------------------------------------------------------------------------------------------------------------------------------
(a) includes $__________ investments in parent, subsidiaries, and affiliates
-3-
FRONT ROYAL, INC.
1996 Insurance Report
Prepared by:
Xxxxxx & Cay/Xxxxxxxx of Virginia, Inc.
X.X. Xxx 000
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, XX 00000-0000
(000) 000-0000
FRONT ROYAL, INC.
1996 Insurance Report
Table of Contents
I. Policy Digests
o Property/Casualty
o Surety
II. Policy Summaries
o Package
o Business Automobile
o Workers' Compensation
o Umbrella
o Financial Institution Bond
o Insurance Companies Professional Liability,
Directors' & Officers' Liability and Fiduciary Liability
o Consultants' Environmental Liability
III. Premium Summary/Monthly Payment Schedule
FRONT ROYAL, INC.
1996 Insurance Report
I. Policy Digests
o Property/Casualty
o Surety
FRONT ROYAL, INC.
1996 INSURANCE REPORT
Property/Casualty Policy Digest
Policy Insurer
Coverage Entities Period (1995 Best Rating) Policy Number
-------- -------- ------ ------------------ -------------
Package All 1/01/96-1/01/97 Hartford Insurance Companies 14UUNBC4984
(A+/XV)
Business Auto All 1/01/96-1/01/97 Hartford Fire Insurance 14UENBC4797
Company (A+/XV)
Workers' Compensation All 1/01/96-1/01/97 Hartford Underwriters Insurance 14WEBX6470
Company (A+/XV)
Umbrella All 1/01/96-1/01/97 Hartford Casualty Insurance 14XHUBC0042
Company (A+/XV)
Professional and D&O Liability: All 12/30/95-12/30/96 Evanston Insurance Company IC-7000598
o Cov A: (A/VIII)
Professional Liability
o Cov B: All 11/30/95-12/30/96 Evanston Insurance Company IC-7000598
Directors & Offices Liability (A/VIII)
o Cov C: Front Royal, Inc. 12/30/95-12/30/96 Evanston Insurance Company IC-7000598
Fiduciary Liability (A/VIII)
Consultants' Environmental Liability Front Royal Environmental 1/23/96-1/01/97 American International Specialty 8183745
Trust Services, Inc. Lines Insurance Company
Front Royal Engineering (A++/XV)
Services, Inc.
Financial Institution Bond All 11/30/95-11/30/96 National Union Fire Insurance 482-1612
Company (A++/XV)
FRONT ROYAL, INC.
1996 INSURANCE REPORT
Surety Bond Digest
Surety
Type of Bond Principal Obligee Bond Term (1995 Best Rating) Bond Number
------------ --------- ------- --------- ------------------ -----------
Financial Xxxxxxx X. Xxxxxx Commonwealth of Kentucky 11/29/95-11/29/96 Fidelity & Deposit 30702484
Responsibility (A/VIII)
Financial Xxxx X. Xxxxxx Commonwealth of Kentucky 11/29/95-11/29/96 Fidelity & Deposit 30702385
Responsibility (A/VIII)
Surplus Lines Xxxxx X. Xxxxxx Commonwealth of Virginia 12/21/95-3/15/97 Fidelity & Deposit 30702854
(A/VIII)
Surplus Lines Front Royal Environmental Commonwealth of Virginia 2/26/96-3/15/97 Fidelity & Deposit LPM8016944
Insurance Mgmt., Inc. (A/VIII)
FRONT ROYAL, INC.
1996 Insurance Report
II. Policy Summaries
o Package
o Business Automobile
o Workers' Compensation
o Umbrella
o Financial Institution Bond
o Insurance Companies Professional Liability,
Directors' & Officers' Liability and Fiduciary
Liability
o Consultants' Environmental Liability
These summaries have been prepared for your convenience and are not exact and
binding analyses of the coverages. Even though care has been taken in its
preparation, the original policies will prevail as the sole binding documents in
the event of a discrepancy.
FRONT ROYAL, INC.
Policy Type: Package
Policy Number: 14UUNBC4984
Policy Period: January 1, 1996 to January 1, 1997
Premium: $7,209
Locations: 1) 0000 Xxxxxx Xxxx Xxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
2) 0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxxxxxxxx, XX 00000
3) 0000-X Xxxx X.X. Xxxxxx Xxxx.
Xxxxxxxxx, XX 00000
Cancellation Notice: Sixty Days Notice of Cancellation except for
nonpayment of premium
Section 1 - Property
Insurer: Hartford Insurance Company of the Midwest
Amount of Insurance: Loc.1) $430,800 Personal Property
$289,860 Extra Expense
Loc.2) $107,200 Personal Property
Loc.3) $37,600 Personal Property
Covered Causes of Loss: SPECIAL FORM - Risk of Direct Physical Loss or
Damage subject to policy terms, conditions or
exclusions.
Valuation: Personal Property - Replacement Cost
Extra Expense - Actual Loss Sustained (40/80/100%
Recovery)
Coinsurance: 80% Waived by Agreed Value Endorsement
Deductibles: $250 Per Occurrence - Personal Property
Nil - Extra Expense
Extensions of Coverage: o $10,000 - Accounts Receivables - Each
Described Premises
o $10,000 - Computer Equipment - Each
Described Premises
o $10,000 - Fine Arts - Each Described
Premises
o $10,000 - Extra Expense - Each Described
Premises
o $25,000 - Valuable Papers and Records
Including Electronic Media - Each
Described Premises
o $10,000 - Outdoor Property for loss due to
named perils but not to exceed
$1,000 for any one tree, shrub or
plant
o $10,000 - Personal Effects and Property of
Others - Each Described Premises
o $10,000 - Property at Other Premises
o $10,000 - Property in Transit
o $1,000 - Salespersons Samples
o $10,000 - Exhibitions - Any One Exhibition
o $250,000- Business Personal Property-Newly
Acquired Locations if reported
within 90 Days
o $5,000 - Arson Reward
o $5,000 - Claim Expenses
o $10,000 - Debris Removal
o $5,000 - Fire Department Service Charge
o Included - Fire Equipment Recharge
o Included - Back Up of Sewers or Drains
o $10,000 - Change in Temperature, Electrical
Injury and Off-Premises Services
Loss of Payees: Location 2:
1) Wachovia Bank of NC
Box 2252
Xxxxxx, XX 00000
2) BB&T
Xxx 00000
Xxxxxxx, XX 00000
Location 3:
1) Xxxx X. Xxxxxxxx Financial Services
X.X. Xxx 000
Xxxxxxxxx, XX 00000-0000
2) Spring Leasing Corporation
X.X. Xxx 000000
Xxxxxxxxx, XX 00000-0000
Section II - Inland Marine
Insurer: Twin City Fire Insurance Company
A. Electronic Data
Processing
Amount of Insurance: Loc.1) $777,500 Computer Equipment
$95,000 Extra Expense
Loc.3) $85,000 Computer Equipment
$25,000 Extra Expense
Covered Cause of Loss: Risks of Direct Physical Loss or Damage including
Mechanical Breakdown, Off-Premises Power Failure,
Flood and Earthquake, subject to policy
terms, conditions and exclusions.
Valuation: Computer Equipment - Replacement Cost
Media and Data - Full cost of
Replacement or reproduction when media
is actually replaced or reproduced, if
not replaced or reproduced, the values
of the blank media.
Extra Expenses - Actual Loss Sustained
Deductible: o $250 Per Occurrence
o $1,000 Per Occurrence - Breakdown Nil - Extra
Expense
Extensions of Coverage: o $25,000 Media and Data
o $25,000 Transit and Off-Premises
o $50,000 Storage of Duplicate Media and Data
permanently stored at locations not listed in
the schedules
o $5,000 Instructional and Operating Manuals
o $2,500 Expense to recharge Automatic Fire
Protection Equipment
o $500,000 Newly Acquired Covered Property if
reported within 60 Days
B. Scientific Instruments
Amounts of Insurance: $68,921 Scientific Instruments per Schedule of
Equipment Attached
Covered Causes of
Loss: Risks of Direct Physical Loss or Damage subject to
policy terms, conditions and exclusions
Valuation: Replacement Cost
Deductible: $500 Any One Occurrence
C. Contractor's Equipment
Amounts of Insurance $43,000 Miscellaneous Equipment Leased or Rental
Covered Caused of
Loss: Risks of Direct Physical Loss or Damage subject to
policy terms, conditions and exclusions
Valuation: Actual Cash Value
Deductible: $250 Any One Occurrence
Section III - Commercial General Liability
Insurer: Twin City Fire Insurance Company
Limits of Liability: o $1,000,000 General Aggregate
o $1,000,000 Products/Completed Operations
Aggregate
o $1,000,000 Personal & Advertising Injury
o $1,000,000 Each Occurrence
o $300,000 Fire Damage
o $10,000 Medical Expense
Employee Benefits Liability
$1,000,000 Each Claim
$1,000,000 Aggregate
(Retroactive Date: April 3, 1995)
Notable Endorsements
and Other Provisions: o Designated Professional Services
Exclusion - Consulting
o Financial Institutions Exclusion
o Insurance and Related Operation Exclusion
o Pollution Exclusion except for
Bodily Injury and Property Damage
caused by heat, smoke or fumes from
a hostile fire.
o General Aggregate Limit Per Location
o General Liability Coverage Enhancement
Endorsement (Items likely to be applicable to
Front Royal, Inc. are listed)
1. Broad Named Insured Wording
2. Knowledge of Occurrence
3. Notice of Occurrence
4. Unintentional Errors and Omissions
5. Broadened Contractual Liability
6. Non-Owned Watercraft Exclusions - 50
Feet
7. Fire, Lightning or Explosion Damage
Liability Extension
8. Incidental Medical Malpractice
Extension
9. Additional Insured - By Contract,
Agreement or Permit
10. Liberalization Provision
o Waiver of Subrogation - Xxxxxxxxx Wellcome
Co.
Additional Insured: o Spring Leasing Corporation - Lessors of
Leased Equipment
Exposure Basis: o Building or Premises - Office
Loc 1) 19,124 Sq. Ft.
Loc 2) 6,600 Sq. Ft.
Loc 3) 2,500 Sq. Ft.
o Employee Benefits Liability
Number of Employees - 96
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Xxxxxxxx Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Services, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
FRONT ROYAL, INC.
SCIENTIFIC INSTRUMENTS
Item No. Full Description of Property Covered Limit of Insurance
-------- ------------------------------------ ------------------
1 1 48 Foxboro Ova GC 1,592
2 1 147 PH Meter 645
3 1 148 OVA Restoration 389
4 1 154 Oil-Water Separator 5,028
5 1 168 H NU/OVA 4,999
6 1 54 Water Level Meter 170
7 1 169 Water Meter Hi-Low 480
8 1 60 Sollinst 100" 397
9 1 102 Tosmiba Laptop Computer 3,469
10 1 66 Motorola Cellular Phone 458
11 1 77 Yamaha Generator 3,701
12 1 8001 Insitu Hermit SE 1000B 3,667
13 1 8002 Instiu Hermit SE 1000B 3,667
14 1 81 Hermit Transoucer X4 8,000
15 1 82 Portable Compressor 468
16 1 83 Augers/Mini R10 472
17 1 84 Mini RIG/SMP Engine 619
18 1 85 Mcortonics Explosimeter 1,890
19 1 86 Water Meter MOD/101 513
20 1 87 Interface Probe M/121 1,839
21 1 3802 OVA 2,396
22 1 8803 Down-Well Pump 4,000
23 1 90 HNU/OVA 4,245
24 1 96 Magnotometer/Locator 682
25 1 98 Elect Hammer/LT Breaker 931
26 1 99 Chisel/Bits-Hammer 32
27 1 106 Air Compressor 932
28 1 107 MNU/OVA 5,240
29 Homemade Trailer with Mounted Oil Drill
with Attachments 8,000
-----
S#1094J275TKO10115
TOTAL 68,92
FRONT ROYAL, INC.
Policy Type: Business Automobile
Insurer: Hartford Fire Insurance Company
Policy Number: 14UENBC4797
Policy Period: January 1, 1996 to January 1, 1997
Premium: $7,213
Limits of Liability: $1,000,000 Each Accident - Bodily Injury and
Property Damage Liability - Any Auto
$2,000 Each Person - Medical Expense -
Owned Autos Only
$1,000,000 Each Accident - Uninsured Motorists
- Owned Autos Only
$1,000,000 Each Accident - Underinsured
Motorists
(When not included in Uninsured
Motorists Coverage)- Owned Autos
Only
Comprehensive -
o Specifically Described Autos -
Actual Cash Value less a $1,000
Deductible except 1995 Ford Ranger
which is subject to $250 Deductible
Collision -
o Specifically Described Autos -
Actual Cash Value less a $1,000
Deductible except 1995 Ford Ranger
which is subject to $500 Deductible
Covered Autos: See Schedule of Vehicles Attached
Notable Endorsements
and Other Provisions: o Commercial Automobile Broad Form Endorsement
1. Broad Named Insured Wording
2. Fellow Employee Exclusion Modified
3. Extended Cancellation Condition - 60 Days
4. Hired Car Physical Damage Coverage on
Excess basis - The lesser of
the cost to repair, ACV or
$35,000 less a $1,000
Deductible
5. Unintentional Failure to Disclose Hazards
6. Hired Auto - Broadened Coverage Territory
7. Amended Duties in the Event of Accident,
Claim, Suit or Loss (Knowledge of
Accident)
o Additional Insured
Emro Marketing
000 Xxxxxxxx Xxxxx
Xxxx X-0000
Xxxx, XX 00000
o Additional Insured/Lessor
1. See Schedule of Autos
o Loss Payee
1. See Schedule of Autos
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Xxxxxxxx Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
FRONT ROYAL, INC.
1996/97 Schedule of Vehicles
Auto No. Garage Location Description I.D.# Cost New Additional Insured Loss Payee
-------- --------------- ----------- ----- -------- ------------------ ----------
1 Morrisville, NC 1963 Xxxx Semi Trailer 912972
2 Morrisville, NC 1993 Ford Pick-up 0XXXX00X0XXX00000 $12,250 Leasing Services, Inc. First Citizens Bank
3 Morrisville, NC 1993 Ford Pick-up 0XXXX00X0XXX00000 $12,250 Leasing Services, Inc. First Citizens Bank
4 Morrisville, NC 1993 Ford Pick-up 0XXXX00X0XXX00000 $17,867 Leasing Services, Inc. First Citizens Bank
5 Raleigh, NC 1989 Olat Trailer 109RJ27S1K010115
6 Raleigh, NC 1994 Xxxx Xx. Xxxxxxxx 0XXXX00XXXX000000 $20,715 Leasing Services, Inc. First Citizens Bank
7 Charlotte, NC 1993 Olds Cutlass 0X0XX00X0X0000000 $10,500 Leasing Services, Inc. First Citizens Bank
8 Charlotte, NC 1995 Ford Ranger 0XXXX00X0XXX00000 $17,658 Valley National Valley National
Financial Services Financial Services
FRONT ROYAL, INC.
Policy Type: Workers' Compensation
Insurer: Hartford Underwriters Insurance Company
Policy Number: 14WEBX6470
Policy Period: January 1, 1996 to January 1, 1997
Premium: $1 9,335
Limits of Liability: Coverage A Statutory: VA,NC
Coverage B Bodily Injury by Accident -$100,000
Each Accident
Bodily Injury by Disease - $500,000 Policy Limit
Bodily Injury by Disease - $100,000 Each Employee
Notable o Sixty Days Notice of Cancellation or Non
Endorsements Renewal, except for nonpayment of premium
and Other
Provisions: o Other States Coverage
o Voluntary Compensation Employer's Liability
Coverage Endorsement
o Foreign Voluntary Compensation and Employer's
Liability
1. Repatriation - $25,000 Per Employee
2. Coverage included for Endemic Diseases
o United States Longshoremen's and Harbor
Workers' Compensation Act Coverage
Endorsement
FRONT ROYAL, INC.
Schedule of Payrolls
--------------------
Classification Description State Payroll
-------------- ----------- ----- -------
Code
----
8810 Clerical Office Employees VA 2,856,488
NC 809,779
8601 Engineering - Consulting NC 769,662
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management, Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Xxxxxxxx Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
FRONT ROYAL, INC.
Policy Type: Umbrella
Insurer: Hartford Casualty Insurance Company
Policy Term: 1 4XHUBC0042
Policy Term: January 1, 1996 to January 1, 1997
Premium: $2,300
Limits of Liability: o $4,000,000 Each Occurrence
o $4,000,000 Products/Completed Operations
Aggregate
o $4,000,000 General Aggregate
o $4,000,000 Bodily Injury By Disease Aggregate
Retained Limit: o $10,000 Each Occurrence
Schedule of
Underlying Insurance: o Commercial General Liability
o $1,000,000 General Aggregate
o $1,000,000 Products Completed Operations
Aggregate
o $1,000,000 Personal and Advertising Injury
o $1,000,000 Each Occurrence
o Automobile Liability
$1,000,000 Each Accident
o Employers Liability
$100,000 Each Accident
$500,000 Disease Policy Limit
$100,000 Disease Each Employee
o Employee Benefits Liability
$1,000,000 Each Claim
$1,000,000 Aggregate
Notable Endorsements: o Absolute Asbestos Exclusion
o Personal Injury Following Form
o Injury to Leased Workers Exclusion
Notable Endorsements
(Cont'd): o Care, Custody or Control of Personal Property
Exclusion
o Care, Custody or Control of Real Property
Exclusion
o Employers' Liability Following Form
o Insurance or Real Estate Agents and Brokers
Errors and Omissions Exclusion
o Designated Professional Services
Exclusion-Consulting
o Real Estate Operations Limitation of Coverage
o Limitation of Coverages - Financial
Institutions
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Xxxxxxxx Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
FRONT ROYAL, INC.
Policy Type: Financial Institution Bond
Insurer: National Union Fire Insurance Company
Bond Number: 000-00-00
Bond Period: November 30, 1995 to November 30, 1996
Premium: $6,669
Limits of Liability: $1,000,000 Single Loss
$1,000,000 Aggregate
Deductible: $50,000 Single Loss
Insuring Agreements: A) Fidelity
B) On Premises
C) In Transit
D) Forgery or Alt ration
E) Securities
Notable Endorsements
and Other Provisions: o Coverage Application is incorporated into the
bond
o Legal proceedings to determine the insured's
liability for any loss, claim or damage to be
reported to the Underwriter within 30 days.
o 60 day notice of cancellation
o Loss Sustained Coverage Endorsement
o Computer Systems Coverage Endorsement
o Central Handling of Securities Endorsement
o ERISA Rider
o Front Royal, Inc. 401(k) Profit Sharing Plan
Named Insureds: Front Royal, Inc.
Colony Management Services, Inc.
Colony Insurance Company
Front Royal Environmental Insurance Management,
Inc.
Front Royal Insurance Company
Front Royal Environmental Services, Inc.
Xxxxxxxx Insurance Company
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, P.C.
FRONT ROYAL, INC.
Policy Type: Insurance Companies Professional, Directors'&
Officers' Liability Indemnity and Fiduciary
Liability Insurance
Insurer: Evanston Insurance Company
Policy Number: IC-700598
Policy Term: November 30,1995 to December 30,1996
Premium: $234,986.07 (Includes $5,167.31 Surplus Lines Tax/
$160.76 Bureau Fee)
Cancellation Notice: Sixty days except in the event of nonpayment of
premium
Coverage A: Insurance Companies Professional Liability (Claims
Made and Reported)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductible: $200,000 Each Claim
Insurer's Participation: 100%
Notable Endorsements and
Other Provisions: o Prior Acts Exclusion November 1, 1991 for
Colony Management
o Insured Entities
Front Royal, Inc.
Xxxxxxxx Insurance Company
Colony Management Services, Inc.
Front Royal Environmental Insurance
Management, Inc.
Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Insurance Company
Colony Insurance Company
Front Royal Engineering Services, PC
Front Royal Environmental Trust Services,
Inc.
Coverage B: Directors' & Officers' Liability
(Claims Made and Reported)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductibles: $0 Each Claim - Each Director or Officer
$0 Each Claim - All Directors and Officers
$100,000 Corporate Reimbursement
Insurer's Participation 100%
Notable Endorsements and
Other Provisions: o Prior Acts Exclusion May 19, 1992 for Front
Royal Environmental Services, Colony
Insurance Company, Xxxxxxxx Insurance Company
and resulting from Cardinal Insurance Company
o Prior Acts Exclusion
January 18, 1993 for Front Royal
Environmental Insurance Management, Front
Royal Environmental Services, Triangle
Engineering and Front Royal Insurance Company
o Pending and Prior Litigation Exclusion
November 1, 1993 for Colony Management
Services, Colony Insurance Company, Xxxxxxxx
Insurance Company and resulting from Cardinal
Insurance Company
o Amendment of "professional services"
definition to include insurance agents and
brokerage operations
o Insurance Agents and Brokers Insolvency
Exclusion
o Pending and Prior Litigation Exclusion -
May 19, 1992
o Insured Entities
Front Royal, Inc.
Xxxxxxxx Insurance Company
Colony Management Services, Inc.
Front Royal Environmental Insurance
Management, Inc.
Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Insurance Company
Colony Insurance Company
Front Royal Engineering Services, PC
Front Royal Environmental Trust Services,
Inc.
Coverage C Fiduciary Liability
(Claims Made and Reported)
Limits of Liability: $1,000,000 Each Claim
$1,000,000 Aggregate
Deductible: $10,000 Each Claim
Employee Benefit Plan: Front Royal, Inc. 401 (k) Profit Sharing Plan
Sponsoring Employer: Front Royal, Inc.
FRONT ROYAL, INC.
Policy Type: Consultants Environmental Liability Policy
(Claims Made)
Insurer: American International Specialty Lines Insurance
Company
Policy Number: 8183745
Policy Term: January 23,1996 to January 1,1997
Premium: $55,226.94 (Includes $1,214.55 Surplus Lines Tax/
$32.39 Bureau Fee)
Limits of Liability: $3,000,000 Each Claim
$3,000,000 Aggregate
Deductible: $50,000 Each Claim
Covered Professional
Services: Remedial investigations;
Feasibility studies;
Project management of site investigations and
remedial activities;
Real estate audits;
Tank testing and maintenance;
Environmental site assessments (Phase I and 11);
Groundwater monitoring, sampling and analysis;
Site characterization reports;
Design of waste water and sewer systems;
Design of potable water systems;
Regulatory consulting;
Waste brokering;
Ecological, wet land and soil science services.
* (Retroactive Date - April 29,1991)
Insured Contractor
Operations: Groundwater and soil sampling;
Soil excavation and remediation;
Underground storage tank removal;
Tank testing;
Asbestos and lead sampling;
Potable water well drilling;
Installation and operation of groundwater and soil
remediation systems.
* (Retroactive Date - January 23,1996)
Cancellation Notice: Thirty days except in the event of nonpayment of
premium.
Named Insureds: Front Royal Environmental Services, Inc.
Triangle Engineering, Inc.
Front Royal Environmental Trust Services, Inc.
Front Royal Engineering Services, Inc.
FRONT ROYAL, INC.
1996 Insurance Report
III. Premium Summary & Monthly Schedule
FRONT ROYAL, INC.
1996 Insurance Report
Premium Summary
Policy Period Policy Type Policy Period Premium
------------- ----------- ---------------------
1/1 /96-1 /1/97 Package $ 7,209.00
1/1/96-1/1/97 Business Auto 7,213.00
1/1/96-1/1/97 Workers' Compensation 19,335.00
1/1/96-1/1/97 Umbrella 2,300.00
12130/95-12/30/96 Professional Liability 150,000.00
11/30/95-12/30/96 Directors' & Officers' 74,658.00
12/30/95-12/30/96 Fiduciary Liability 5,000.00
11/30/95-11/30/96 Financial Institution Bond 6,669.00
11/23/96-111/97 Consultants' Environmental 53,980.00
11/29/95-11/29/96 Financial Resp. Bond - KY 100.00
11/29/95-11129/96 Financial Resp. Bond - KY 100.00
12/21/95-3/15/97 Surplus Lines Bond - VA 250.00
2/26/96-3/15/97 Surplus Lines Bond - VA 250.00
--------------
*Total Premiums $ 327,064.00
Taxes & Fees - Professional, D&O & Fiduciary $ 5,328.07
Taxes & Fees - Consultants' Environmental 1,246.94
--------------
*Total Taxes & Fees $ 6,575.01
*Total Premium Finance Charges 9,365.73
--------------
**Grand Total - Premiums, Taxes & Fees and
Premium Finance Charges $ 343,004.74
FRONT ROYAL, INC.
1996 Insurance Report
Monthly Payment Schedule
Month AFCO AICCO Totals
----- ---- ----- Misc. ------
(30th of Month) (23rd of Month) Bonds
--------------- --------------- -----
11/95 $ 55,671.07 -- $ 200.00 $ 55,871.07
12/95 25,547.06 -- 250.00 25,797.06
1/96 25,547.06 $ 11,045.39 -- 36,592.45
2/96 25,547.06 5,073.86 250.00 30,870.92
3/96 25,547.06 5,073.86 -- 30,870.92
4/96 25,547.06 5,073.86 -- 30,870.92
5/96 25,547.06 5,073.86 -- 30,870.92
6/96 25,547.06 5,073.86 -- 30,870.92
7/96 25,547.06 5,073.86 -- 30,870.92
8/96 25,547.06 5,073.86 -- 30,870.92
9/96 -- 5,073.86 -- 5,073.86
10/96 -- 5,O73.86 -- 5,O73.86
---------------------------------------------------------------------
Totals $285,594.61 $ 56,710.13 $ 700.00 $343,004.74
Premium Finance Notes:
----------------------
Annual Percentage Rate Annual Finance Charge
---------------------- ---------------------
(Incl. above)
AFCO 8.44 $ 7,882.54
AICCO 7.99 $ 1,483.19
Total ---
-------------
$ 9,365.73
"AFCO" includes: Package
Business Automobile
Workers' Compensation
Umbrella
Financial Institution Bond
Professional, D&O & Fiduciary
"AICCO" includes: Consultants' Environmental Liability
Xxxxxxxx Insurance Company
Disclosure Schedule 3.25
at 11/30/96
Authorized Compensating
Bank Name & Location Acct # Account Type Signers Balance
------------------------------------------------------------------------------------------------------------------------------------
First Union National Bank-Richmond, VA 000-00000-000000 disbursement see below (1) none
First Union National Bank-Richmond, VA 000-000000-00000 depository see below (1) none
First Union National Bank-Richmond, VA 000-000-0000 securities custodial see below (1) none
First Union National Bank-Richmond, VA 000-000-0000 securities custodial see below (1) none
First Union National Bank-Richmond, VA 000-000-0000 securities custodial see below (1) none
First Union National Bank-Jacksonville, FL 000-000-0000 securities custodial see below (2) none
Wachovia National Bank-Winston Salem, NC 00-00000-00 securities custodial see below (3) none
Hibernia National Xxxx-Xxx Xxxxxxx, XX 00000 securities custodial see below (3) none
First National Bank of Xxxxxx-Xxxxxx, XX 0000000 securities custodial see below (3) none
Wachovia National Bank-Columbia, SC 171000036 securities custodial see below (4) none
Crestar Xxxx-Xxxxxxxx, XX 00000 securities custodial see below (3) none
authorized signers (1) authorized signers (3)
Xxxx Xxxxx Xxxxxx Xxxxx
Xxxxx X. Xxxxx Regulatory personnel
Xxxx X. Xxxxxx
Xxxxxx Xxxxx authorized signers (4)
Xxxxxx X. Xxxxxxx Xxxx X. Xxxxxx
Xxxxxxx Xxxx Xxxxxx Xxxxx
Xxxx Xxxxxxxxxx Xxxx Xxxxx Xxxxxx
Regulatory personnel
authorized signers (2)
Xxxx X. Xxxxxx
Xxxxxx Xxxxx
Xxxxxxx Xxxx
Xxxx Xxxxxxxxxx
Regulatory personnel
Exhibit A
NON-COMPETE AND NON-SOLICITATION AGREEMENT
OF
FRONT ROYAL INSURANCE COMPANY
AND
COLONY INSURANCE COMPANY
AND
ROCKWOOD CASUALTY INSURANCE COMPANY
NON-COMPETE AND NON-SOLICITATION AGREEMENT, dated as of
______________________, between FORT WASHINGTON HOLDINGS, INC., a Pennsylvania
corporation with its principal offices at 000 Xxxx Xxxxxx, Xxxxxx Xxxxx, Xxxx
Xxxxxxxxxx, Xxxxxxxxxxxx 00000 (the "Corporation"), FRONT ROYAL INSURANCE
COMPANY, a Pennsylvania insurance corporation, with its principal offices at
0000 Xxxxxx Xxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxx 00000 ("Front Royal"),
COLONY INSURANCE COMPANY, a Virginia corporation, with its principal offices at
0000 Xxxxxx Xxxx Xxxxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxxx 00000 ("Colony") and
ROCKWOOD CASUALTY INSURANCE COMPANY, a Pennsylvania insurance corporation, with
its principal offices at 000 Xxxx Xxxxxx, Xxxxxxxx, Xxxxxxxxxxxx 00000
("Rockwood").
W I T N E S S E T H:
WHEREAS, concurrently with the execution and delivery of this Agreement,
and pursuant to the terms of the Option Agreement, dated as of December 31, 1996
(the "Xxxxxxxx Agreement"), among Colony, as seller, and the Corporation, as
buyer, the Corporation purchased 1,500 shares of Common Stock, $1,000 par value
per share, of Xxxxxxxx Insurance Company ("Xxxxxxxx"), which constitutes all of
the issued and outstanding common stock of Xxxxxxxx; and
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as of
December 6, 1996 (the "Stock Purchase Agreement"), among PIC Insurance Group,
Inc. and Trirock Limited Partnership, as sellers, and Front Royal, Inc. ("FRI"),
as buyer, FRI purchased all of the issued and outstanding shares of capital
stock of Rockwood; and
WHEREAS, Colony is a wholly owned subsidiary of FRI; and
WHEREAS, Front Royal is a wholly owned subsidiary of Colony; and
WHEREAS, it is a condition to consummation of the Closing (as defined in
the Xxxxxxxx Agreement) that this
Agreement be executed and delivered and in full force and effect; and
WHEREAS, the Corporation wishes to be protected against competition from
Front Royal, Colony and Rockwood in the business of writing or issuing private
passenger automobile insurance ("Competitive Business").
NOW, THEREFORE, in consideration of the payment of $1.00 and other good and
valuable consideration to each of Front Royal, Colony and Rockwood and the
mutual covenants and promises herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. Term of the Agreement. The term of this Agreement shall commence on the
date hereof and terminate on the date which is three years from the date of
execution and delivery of the Xxxxxxxx Agreement (the "Term").
2. Covenant Not to Compete. (a) Front Royal, Colony and Rockwood each
covenants and agrees that (i) the Corporation will suffer substantial damage
which will be difficult to compute if, after consummation of the Closing, Front
Royal, Colony or Rockwood should engage in any Competitive Business and (ii) the
provisions of this Paragraph 2 are reasonable and necessary for the protection
of the Corporation.
(b) During the Term of this Agreement, without the prior written consent of
the Corporation, each of Front Royal, Colony and Rockwood shall not, in the
States of Maryland or Virginia, directly or indirectly: (i) enter into the
employ of or render any services to any person, firm, corporation, partnership,
limited liability company or other entity or business engaged in any Competitive
Business; or (ii) engage in any Competitive Business for its own account. Mere
passive ownership of stock representing 5% or less of the capital stock of a
publicly held company shall not be deemed a breach of this Paragraph 2.
(c) If any provision of this Paragraph 2 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration or area,
or all of them, and such modification or provisions shall then be applicable in
such modified form.
(d) If Front Royal, Colony or Rockwood commits a breach, or threatens to
commit a breach, of any of the provisions of clause (b) above, the Corporation
shall have the right and remedy, in addition to all other remedies at law and in
equity: (i) to have the provisions of this Paragraph 2 specifically enforced by
any court having equity jurisdiction; and (ii) to
-2-
require such breaching party to account for and pay over to the Corporation all
compensation, profits, monies, accruals, increments, or other benefits derived
or received by such breaching party as the result of any transactions
constituting a breach of any of the provisions of clause (b) above and Front
Royal, Colony and Rockwood each hereby agree to account for and pay over such
benefits to the Corporation.
(e) Nothing in this Agreement shall be deemed in any way to apply, directly
or indirectly, to any of the Affiliates (as defined in the Xxxxxxxx Agreement)
of Front Royal, Colony or Rockwood, including any current or future Affiliates;
provided, however, that each of Front Royal, Colony and Rockwood hereby agrees
that neither it nor any of its Affiliates shall acquire, whether through the
purchase of capital stock or assets, any entity the primary business of which is
any Competitive Business in the States of Maryland or Virginia.
3. Covenant Not to Solicit. (a) Front Royal, Colony and Rockwood each
covenants and agrees that for the Term of this Agreement it shall not, directly
or indirectly, solicit for its own account or for the account of another, or
assist any other person in soliciting, for the purpose of placing private
passenger automobile insurance or related insurance lines with an insurance
company other than Xxxxxxxx, any of the agents or brokers who are identified on
Exhibit A hereto. Nothing in this Paragraph 3 shall prohibit either Front Royal,
Colony or Rockwood from soliciting any agents or brokers identified on Exhibit A
for its own account or for the account of another, for the purpose of placing
any line of insurance which is unrelated to private passenger automobile
insurance.
(b) Front Royal, Colony and Rockwood each further agree that, during the
Term of this Agreement, it shall not, directly or indirectly, (i) solicit,
entice, persuade or seek to induce any person who is or was an employee of, or
consultant to, Xxxxxxxx on the date hereof or at any time during the Term of
this Agreement or the six-month period prior to the date hereof, to terminate
his or her employment or consultancy with Xxxxxxxx, or (ii) solicit, entice,
persuade or seek to induce, for its own account or for the account of any other
person, any person who is or was an employee or consultant of Xxxxxxxx on the
date hereof or at any time during the term of this Agreement or the six-month
period prior to the date hereof, for employment with any insurance company
writing private passenger automobile or related lines of insurance, or (iii)
approach any such employee or consultant for any of the foregoing purposes, or
(iv) authorize or assist in the taking of any such actions by any third party.
4. General. (a) This Agreement shall be governed by and construed and
enforced in accordance with the laws of the
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Commonwealth of Pennsylvania applicable to agreements made and to be performed
entirely in Pennsylvania.
(b) The article and section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
(c) This Agreement sets forth the entire agreement and understanding of the
parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understanding, written or oral, relating to the
subject matter hereof.
(d) The Corporation may assign its rights, together with its obligations
hereunder, in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets; in any event, the obligations of
the Corporation hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets.
(e) This Agreement may be amended, modified, superseded, renewed or
extended and the terms or covenants hereof may be waived, only by a written
instrument executed by both of the parties hereto, or in the case of a waiver,
by the party waiving compliance. The failure of either party at any time or
times to require performance of any provision hereof shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of the
breach of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one or more instances, shall be deemed to be or construed
as a further or continuing waiver of any such breach, or a waiver of the breach
of any other term or covenant contained in this Agreement.
(f) Any and all notices or other communications or deliveries required or
permitted by this Agreement shall be in writing and shall be delivered
personally, sent by a nationally recognized courier service or sent by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the party at the address on the first page of this Agreement, or to
such other address as a party may provide in accordance with this Section 4(f).
Any notice or other communications or deliveries hereunder shall be deemed given
and effective (i) upon receipt if delivered personally or by courier, or (ii)
three days after mailing as provided above.
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IN WITNESS WHEREOF, the parties hereunder have caused this Agreement to be
executed by their duly authorized representative on the date first above
written.
FRONT ROYAL INSURANCE COMPANY
By:___________________________
Name:
Title:
COLONY INSURANCE COMPANY
By:___________________________
Name:
Title:
ROCKWOOD CASUALTY INSURANCE COMPANY
By:___________________________
Name:
Title:
FORT WASHINGTON HOLDINGS, INC.
By:___________________________
Name:
Title:
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