EXHIBIT 10.18
Lumbermens Mutual Casualty Company
September 29, 2003
SeaBright Insurance Holdings, Inc.
SeaBright Insurance Company
0000 0xx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx 00000
Ladies and Gentlemen:
Reference is hereby made to that certain Purchase Agreement (as
amended, the "Purchase Agreement"), dated as of July 14, 2003, by and among
SeaBright Insurance Holdings, Inc., a Delaware corporation (formerly known as
Insurance Holdings, Inc., "Buyer"), Xxxxxx Employers Group, Inc., a Washington
corporation ("KEG"), Lumbermens Mutual Casualty Company, an Illinois domiciled
mutual insurance company ("LMC"), Eagle Pacific Insurance Company, a Washington
domiciled insurance company ("Eagle Pacific"), and Pacific Eagle Insurance
Company, a California domiciled insurance company ("Pacific Eagle" and, together
with KEG, LMC and Eagle Pacific, the "Sellers"), as amended by that certain
letter agreement, dated as of July 30, 2003 (the "July 30 Letter"), and that
certain letter agreement, dated as of September 15, 2003. Capitalized terms used
but not defined herein shall have the respective meanings ascribed to them in
the Purchase Agreement.
In connection with the Purchase Agreement, Buyer and Sellers hereby
agree that:
1. Section 8.2(b) of the Purchase Agreement shall be amended and restated to
read in its entirety as follows:
(b) On or prior to the Closing Date, Buyer shall arrange for the
establishment by Xxxxxx Employers Insurance Company of a defined
contribution plan under Section 401(k) of the Code (the "KEIC 401(k)
Plan"). Within two business days following the Closing, Sellers shall
cause the trustee of the Eagle Employees Savings and Profit Sharing Plan
(the "Eagle 401(k) Plan") to transfer in cash (but including promissory
notes evidencing participant loans) to the KEIC 401(k) Plan the account
balances of the Transferred Employees. Such transfer of account balances
shall be in accordance with Section 414(l) of the Code.
2. The reference to "Buyer's 401(k) Plan" in Section 8.2(a) of the Purchase
Agreement is hereby amended to read as follows: "KEIC's 401(k) Plan".
3. In order to clarify the intent of the parties at the time of the execution
of the Purchase Agreement and the July 30 Letter, the definition of KEIC
Book Value in the Purchase Agreement shall be amended and restated to read
in its entirety as follows:
"KEIC Book Value" means an amount equal to the book value of KEIC as of
the close of business on the day prior to the Closing Date, calculated in
accordance with the Agreed Accounting Principles, after giving effect to
the Commutation Agreement, and increased (without duplication) by the
aggregate amount of (i) the California Prepayments
transferred by LMC to KEIC pursuant to Section 7.11, (ii) the non-admitted
prepaid unallocated loss adjustment expense asset resulting from Sellers'
agreement to be responsible for the servicing of claims under all
insurance policies written by KEIC prior to the Closing Date and the
prepayment therefor, regardless of whether such prepayments would
otherwise be included in calculating book value in accordance with SAP and
(iii) the net aggregate unrealized gain, if any, as of the close of
business on the day prior to the Closing Date (net of Taxes) with respect
to the assets owned by KEIC that are then held on deposit with any
Administrative Authority.
4. Notwithstanding anything to the contrary contained in the Purchase
Agreement, the Commutation Agreement shall be executed by both of LMC and
KEIC, and the transactions contemplated thereunder shall be consummated,
immediately following the sale of shares of KEIC by KEG to Buyer, and each
of Buyer and the Sellers agrees to cause such execution and delivery of
the Commutation Agreement and the consummation of such transactions to
occur as of such time. The parties acknowledge that the Commutation
Agreement is an integral component of the transactions contemplated by the
Purchase Agreement, and each of Buyer and the Sellers shall report and
file all Tax Returns on the basis that the transactions occurring under
the Commutation Agreement are for the account of, and included entirely
within, LMC's consolidated Tax Return, and no party shall take any
position inconsistent with the foregoing; provided, however, that
notwithstanding anything to the contrary in the Purchase Agreement, Buyer
shall indemnify and hold harmless each of the Seller Group Members from
and against any and all Losses and Expenses incurred by such Seller Group
Members in connection with any dispute or other proceeding, if any,
arising as a result of reporting the transactions on such basis.
5. Section 7 of the July 30 Letter shall be amended and restated to read in
its entirety as follows:
Buyer shall have the right to purchase its own Oracle software licenses
after the Closing, in lieu of assuming any obligations with respect to any
of Seller's Oracle software licenses. Buyer shall notify Sellers of its
decision in this regard within five business days following the Closing.
6. At the Closing, in lieu of entering into the form of Reinsurance Trust
Agreement contemplated by the Purchase Agreement and July 30 Letter, LMC
and KEIC shall enter into the Trust Agreement in the form attached hereto
as Exhibit A (the "Interim Trust Agreement") with The Bank of New York, as
trustee. Following the Closing, LMC and Buyer shall use their reasonable
best efforts to cause as soon as reasonably practicable the amendment and
restatement of the Interim Trust Agreement to conform to the form of
Reinsurance Trust Agreement contemplated by the Purchase Agreement and
July 30 Letter, with such changes as may be requested by The Bank of New
York and reasonably agreed to by LMC and Buyer; provided, that LMC and
Buyer shall use their reasonable best efforts to minimize such changes
from the contemplated form. In the event that LMC and Buyer cannot
reasonably agree to all of the proposed changes requested by The Bank of
New York (or such proposed changes materially alter the underlying
agreement of Buyer and the Sellers with respect to the reinsurance trust
arrangement), LMC and Buyer agree to use their reasonable best efforts to,
as soon as reasonably practicable, (i)
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identify a successor trustee reasonably acceptable to both LMC and Buyer
and to whom the form of Reinsurance Trust Agreement is acceptable, with
such changes as may be requested by such successor trustee and reasonably
agreed to by LMC and Buyer (the "Agreed Trust Agreement"), and (ii) cause
such Person to succeed to The Bank of New York as trustee of the
reinsurance trust created pursuant to the Interim Trust Agreement
simultaneously with an amendment and restatement of the Interim Trust
Agreement to conform to the form of the Agreed Trust Agreement.
7. Except as expressly amended by this letter agreement, the Purchase
Agreement is not otherwise amended or modified and remains in full force
and effect in accordance with its original terms (as previously amended in
writing prior to the date of this letter agreement).
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In witness whereof, each of the parties has caused this letter to be
executed as of the date first written above.
SEABRIGHT INSURANCE
HOLDINGS, INC.
By: /s/ Xxxx X. Xxxxxxxxxxx
--------------------------------------------
Name: Xxxx X. Xxxxxxxxxxx
Title: President
XXXXXX EMPLOYERS GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
LUMBERMENS MUTUAL CASUALTY COMPANY
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Chief Financial Officer and
Executive Vice President
EAGLE PACIFIC INSURANCE COMPANY
By: /s/ Xxxx X. Xxxxxx
--------------------------------------------
Name: Xxxx X. Xxxxxx
Title: Secretary
PACIFIC EAGLE INSURANCE COMPANY
By: /s/ Xxxx X. Xxxxxx
--------------------------------------------
Name: Xxxx X. Xxxxxx
Title: Secretary
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