Exhibit 10.k
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REPLACEMENT CARRIER AGREEMENT
Among
OHIO CASUALTY OF NEW JERSEY, INC.
And
PROFORMANCE INSURANCE COMPANY
NATIONAL ATLANTIC HOLDINGS CORP.
Dated: December 18, 2001
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TABLE OF CONTENTS
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Title Page
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1. Definitions........................................................ 1
1.1 Block of Business............................................ 1
1.2 Business..................................................... 1
1.3 Closing...................................................... 1
1.4 Closing Date................................................. 1
1.5 Nonrenewal Date.............................................. 1
1.6 Nonrenewal Period............................................ 1
1.7 OCIC......................................................... 2
1.8 Prior Business............................................... 2
1.9 Renewed Business............................................. 2
1.10 Specified Period............................................. 2
1.11 UEZ.......................................................... 2
2. Renewal of OCNJ's Business by PIC.................................. 2
3. Consideration...................................................... 4
3.1 Payments by OCNJ............................................. 4
3.2 Certain Potential Additional Payments by OCNJ and
Dividend Restrictions on PIC................................. 4
3.3 Termination of Funding Obligations........................... 5
4. Closing............................................................ 5
5. Closing Deliveries................................................. 5
5.1 Closing Deliveries by OCNJ................................... 5
5.2 Closing Deliveries by PIC and NAHC........................... 6
5.3 Form and Substance of Documents.............................. 6
6. Representations and Warranties by OCNJ............................. 6
6.1 Corporate Organization....................................... 6
6.2 Authorization; Enforceability................................ 6
6.3 No Violation................................................. 6
6.4 Litigation................................................... 7
6.5 Brokers...................................................... 7
6.6 Disclosure................................................... 7
7. Representations and Warranties by PIC and NAHC..................... 7
7.1 Corporate Organization....................................... 7
7.2 Authorization; Enforceability................................ 7
7.3 No Violation................................................. 8
7.4 Litigation................................................... 8
7.5 Brokers...................................................... 8
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7.6 Financial Statements......................................... 8
7.7 Reinsurance Matters.......................................... 9
7.8 Disclosure................................................... 9
8. Covenants of OCNJ.................................................. 9
8.1 Access, Information, Documents, Data and Information
Services..................................................... 9
8.2 Consents and Approvals....................................... 10
8.3 Confidential Information..................................... 10
9. Covenants of PIC and NAHC.......................................... 10
9.1 No Dividends................................................. 10
9.2 Withdrawal Plan.............................................. 10
9.3 Confidential Information..................................... 11
9.4 Consents and Approvals....................................... 11
9.5 Reinsurance and Related Matters.............................. 11
9.6 Financial Statements......................................... 12
9.7 Annual Data.................................................. 12
9.8 Investment Policy............................................ 12
9.9 Use of Proceeds.............................................. 12
9.10 Access, Information and Documents............................ 12
10. Conditions Precedent to Obligations of OCNJ........................ 13
10.1 Performance of PIC and NAHC.................................. 13
10.2 Regulatory Consents and Approvals............................ 13
10.3 Requirements Imposed by Regulatory Authorities............... 13
10.4 Withdrawal................................................... 13
10.5 Due Diligence................................................ 13
10.6 Third Party Consents......................................... 14
10.7 Board of Directors........................................... 14
10.8 Fairness Opinion............................................. 14
10.9 Employee Transition Agreement................................ 14
10.10 Subscription Agreement....................................... 14
10.11 Non-Competition Agreement.................................... 14
11. Conditions Precedent to Obligations of PIC and NAHC................ 14
11.1 Performance of OCNJ.......................................... 14
11.2 Regulatory Consents and Approvals............................ 14
11.3 Requirements Imposed by Regulatory Authorities............... 15
11.4 Due Diligence................................................ 15
11.5 Third Party Consents......................................... 15
11.6 Board of Directors........................................... 15
11.7 Employee Transition Agreement................................ 15
11.8 Subscription Agreement....................................... 15
11.9 Non-Competition Agreement.................................... 15
12. Termination........................................................ 15
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12.1 Termination Events........................................... 15
12.2 Effect of Termination........................................ 16
13. Survival of Representations and Warranties; Indemnification........ 16
13.1 Survival of Representations and Warranties................... 16
13.2 Indemnification Obligations of OCNJ.......................... 16
13.3 Indemnification Obligations of PIC and NAHC.................. 16
13.4 Procedure for Indemnification Claims......................... 17
13.5 Right of Set-Off............................................. 19
14. Disclosures........................................................ 19
15. Names.............................................................. 19
16. Miscellaneous...................................................... 19
16.1 Assurance of Further Action.................................. 19
16.2 Expenses..................................................... 19
16.3 Waiver....................................................... 19
16.4 Notices...................................................... 20
16.5 Entire Agreement............................................. 21
16.6 Rights Under this Agreement; Nonassignability................ 21
16.7 Governing Law................................................ 21
16.8 Headings: References to Sections, Exhibits and Schedules..... 21
16.9 Counterparts................................................. 21
LIST OF EXHIBITS AND SCHEDULES.......................................... 23
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REPLACEMENT CARRIER AGREEMENT
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THIS REPLACEMENT CARRIER AGREEMENT (this "Agreement") is entered into
this 18th day of December, 2001, among Ohio Casualty of New Jersey,
Inc., an Ohio domestic property and casualty insurance company ("OCNJ"),
Proformance Insurance Company, a New Jersey domestic property and casualty
insurance company ("PIC"), and National Atlantic Holdings Corp., a New
Jersey corporation ("NAHC");
WITNESSETH
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WHEREAS, the parties desire to enter into a replacement carrier
agreement pursuant to which OCNJ will transfer to PIC the obligations of OCNJ
to offer renewals for all (100%) of the Business (as defined herein) as of
the Nonrenewal Date (as defined herein) together with consideration and fees
set forth herein;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The following terms shall have the respective meanings
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set forth below throughout this Agreement:
1.1 "Block of Business" shall mean (a) all private passenger
automobile business as included in the NAIC Annual Statement private passenger
automobile liability and physical damage lines issued by PIC on or after the
Closing Date which was produced by OCNJ Agents who are not appointed by PIC
as of the Closing Date, (b) all Business which is renewed with PIC after the
Closing Date which was produced by OCNJ Agents who were appointed by PIC prior
to the Closing Date, and (c) all Business which is renewed with PIC after the
Closing Date which was produced by Active Cancelled Agents or nonresident OCNJ
agents who are appointed by PIC, regardless of when appointed by PIC.
1.2 "Business" shall mean OCNJ's private passenger automobile
business, including assigned risk, UEZ and any associated personal umbrella
endorsements thereto, written in the State of New Jersey.
1.3 "Closing" shall mean the closing of the transactions
contemplated by this Agreement.
1.4 "Closing Date" shall mean the latter of November 1, 2001 or
the date on which all conditions to the obligations of the parties to close
the transactions provided for in Sections 10 and 11 have been satisfied.
1.5 "Nonrenewal Date" shall mean the effective date set forth in
the initial notice of nonrenewal of the Business, which shall be on or about
60 days after the Closing Date.
1.6 "Nonrenewal Period" shall mean the one year period
commencing on the Nonrenewal Date and ending on the first anniversary of the
Nonrenewal Date.
1.7 "OCIC" shall mean The Ohio Casualty Insurance Company, an
Ohio domestic property and casualty insurance company, which is the parent
corporation of OCNJ.
1.8 "Prior Business" shall mean the Business issued on or prior
to the Nonrenewal Date and all endorsements issued by OCNJ on such Business
prior to and during the Nonrenewal Period.
1.9 "Renewed Business" shall mean (a) the Business renewed or
required to be renewed by PIC under this Agreement, and (b) any assignments
from the PAIP (as defined in Section 2.1 below) after the Nonrenewal Date.
1.10 "Specified Period" shall mean the period beginning on the
Nonrenewal Date and ending on December 31 of the second calendar year
following the calendar year in which the Nonrenewal Date occurs.
1.11 "UEZ" shall mean urban enterprise zone policies issued as
required by N.J.S.A. 17:33C-2, as implemented by N.J.A.C. 11:3-46.1 et seq.
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2. Renewal of OCNJ's Business by PIC. Upon the terms and conditions
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of this Agreement:
2.1 On the Closing Date, OCNJ shall cease issuing new private
passenger automobile policies, including UEZ policies, and any associated
personal umbrella endorsements thereon in New Jersey, and OCNJ shall not
resume issuing new private passenger automobile policies in New Jersey until
at least five (5) years after the Closing Date. However, after the Closing
Date and during the Nonrenewal Period, OCNJ shall continue to issue
endorsements in the ordinary course on the Business which has not yet been
nonrenewed. Additionally, OCNJ shall continue to issue assigned risk policies
distributed to OCNJ by the Governing Committee of the New Jersey Personal
Automobile Insurance Plan ("PAIP") pursuant to N.J.A.C. 11:3-2.11 and the
PAIP Plan of Operation until the Nonrenewal Date, at which time PIC shall
assume all obligations for all OCNJ assignments from the PAIP on or after the
Nonrenewal Date.
2.2 As of the Nonrenewal Date, OCNJ shall cease renewing the
Business in the State of New Jersey.
2.3 Within thirty (30) days after the date on which the last
nonrenewal notice has been given by OCNJ and the last policy included within
the Business has expired, an appropriate officer or other representative of
OCNJ shall give notice to the New Jersey Department of Banking and Insurance
(the "DOBI") of such nonrenewal and expiration in order that the DOBI can
withdraw OCNJ's rating system.
2.4 From and after the Nonrenewal Date, PIC shall be the
replacement carrier of OCNJ for the Business within the meaning of NJAC
11:2-29.5, and PIC shall have the obligation to offer to renew the Business.
PIC shall comply with all requirements as stipulated in the order issued by
the DOBI (the "DOBI Order") approving the transactions contemplated by this
Agreement. OCNJ shall comply with all requirements as stipulated in the DOBI
Order.
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2.5 The parties shall jointly send to each policyholder of OCNJ
written notices of nonrenewal substantially in the form of Exhibit 2.5A
hereto, along with notices that offer a guaranteed option to renew their
policies with PIC in the form of Exhibit 2.5B. All of such notices shall be
approved by the DOBI and the parties prior to mailing.
2.6 OCNJ shall retain all rights and obligations related to the
Prior Business, including but not limited to all unpaid claims (whether
reported or unreported) and all unearned premium reserves. Neither PIC nor
NAHC shall assume any debts, liabilities or obligations of OCNJ or its
affiliates with respect to the Prior Business (other than the renewal, UEZ
and assigned risk obligations referred to herein), and all such debts,
liabilities and obligations shall be and remain the responsibility of OCNJ or
its affiliates, as the case may be.
2.7 Except only as specifically set forth in Section 2.6 of this
Agreement, PIC shall be solely responsible for all rights and obligations
related to the Renewed Business. OCNJ shall not assume any debts,
liabilities or obligations of PIC, NAHC or any of its or their respective
affiliates, and all debts, liabilities and obligations shall be and remain
the responsibility of PIC, NAHC and its or their respective affiliates, as
the case may be. The sole and exclusive monetary obligation of OCNJ arising
out of this Agreement and the transactions contemplated by this Agreement
shall be the consideration and fees to be paid by OCNJ to PIC and NAHC under
Sections 3 and 16.2 hereof. Without limiting the generality of the foregoing,
OCNJ shall have no duties or liabilities whatsoever with respect to any
policyholders of PIC (and/or any claimants of such policyholders) regarding
the Renewed Business, and nothing contained in this Agreement shall create or
be deemed to create any third party beneficiary or other or similar rights in
any such policyholders and/or claimants against OCNJ.
2.8 PIC shall renew the Business on a basis by which PIC will not
interfere with any of the expiration rights of the current agents of OCNJ.
PIC will offer to appoint all of OCNJ's active resident agents who have
written the Business (the "OCNJ Agents"), and will give them a reasonable
time to become equity owners of NAHC. Further, PIC shall offer limited
appointments to OCNJ active cancelled agents (the "Active Cancelled Agents")
for purposes of servicing their existing books at the time of cancellation by
OCNJ, and PIC shall offer limited appointments to OCNJ non-resident active
agents with twenty (20) or more New Jersey private passenger automobile
policies in force on the Closing Date for purposes of servicing their
existing books as of the Closing Date. PIC shall send to each OCNJ Agent
written notice substantially in the form of Exhibit 2.8A hereto, informing
the agent of this Agreement and encouraging him, her or it to accept the
appointment of PIC. PIC shall send to each Active Cancelled Agent written
notice substantially in the form of Exhibit 2.8B hereto, informing the
agent of this Agreement and encouraging him, her or it to accept the
limited appointment of PIC for purposes of servicing his, her or its existing
book at the time of cancellation by OCNJ. OCNJ shall send to each OCNJ Agent
and each Active Cancelled Agent written notice substantially in the form of
Exhibit 2.8C hereto, informing the agent of this Agreement and terminating
the appointment of the agent by OCNJ.
3. Consideration. If and only if the Closing occurs:
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3.1 Payments by OCNJ. Recognizing the New Jersey Department of
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Banking and Insurance requirement that the business be supported with
adequate surplus, OCNJ shall pay
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to PIC $40,600,000, to be paid in twelve (12) equal monthly installments
payable by wire transfer, with the first payment to be made on the Nonrenewal
Date and subsequent payments on the tenth (10th) business day of each month
following the Nonrenewal Date.
3.2 Certain Potential Additional Payments by OCNJ and Dividend
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Restrictions on PIC.
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(a) For the Specified Period, there will be no dividends paid
by PIC in excess of dividends necessary to service and/or pay-off
indebtedness of NAHC which was in existence as of the date of this Agreement
and disclosed on Schedule 3.2(a). Any dividends in excess of this limit
shall result in a dollar-for-dollar reduction in the $15,600,000 aggregate
limit described in Section 3.2(b).
(b) For the Specified Period, OCNJ shall pay to PIC additional
sums of money as are necessary to reduce PIC's premium-to-surplus ratio to
not less than 2.5 to 1 on the "Block of Business" as defined herein and
calculated in (c) below, subject to an aggregate limit of $15,600,000. Said
additional sums shall be calculated and paid annually within forty-five (45)
days of the due date of the NAIC Insurance Expense Exhibit (the "NAIC IEE")
for each calendar year in the Specified Period.
(c) (1) The Block of Business premium-to-surplus ratio will
be calculated according to the technique described on the worksheet attached
as Schedule 3.2(c). (2) For purposes of calculating (1) above, if the total
of the amounts shown on Schedule 3.2(c), column (D), lines 23, 25, 27 and 29,
minus column (D), line 31, exceeds 30% of column (D), line 1 of Schedule
3.2(c), then the amount of column (F), line 41 on Schedule 3.2(c) shall be
increased by the following amount: (i) add column (F), lines 23, 25, 27 and
29, and subtract column (F), line 31, and then (ii) subtract 30% of column (F),
line 1 from the amount calculated under (i).
(d) The calculation in (c) above shall exclude the effect of
any reinsurance transactions, any reserve adjustments, any provisions for
loss and/or loss adjustment expenses, any extraordinary expenses (including,
without limitation, deferred compensation and employee bonuses) or any other
actions or transactions that will or could result in a material reduction in
income during the Specified Period with a related increase in income
subsequent to the end of the Specified Period.
(e) The references in this Section 3.2 to columns and lines
are to the NAIC IEE and Annual Statement for the year 2000 and to the
analogous or corresponding columns of the NAIC IEE and Annual Statement for
subsequent years.
3.3 Termination of Funding Obligations. Any and all payment and
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funding obligations of OCNJ under Sections 3.1 and 3.2 shall terminate
immediately upon the earliest to occur of:
(a) PIC and/or NAHC voluntarily enter into any rehabilitation,
receivership, conservation or liquidation proceeding under either federal
bankruptcy law or any state insurance law;
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(b) A court of competent jurisdiction or any insurance regulator,
with or without the consent of PIC and/or NAHC, places PIC and/or NAHC, or
subjects substantially all of its or their assets, to rehabilitation,
receivership, conservation, liquidation, or delinquency proceeding (other
than administrative supervision), under either federal bankruptcy law or
any state insurance law;
(c) Any material breach or default by PIC or NAHC of their
representations, warranties and covenants in this Agreement; or
(d) The satisfaction of all payment and funding obligations of
OCNJ under Sections 3.1 and 3.2.
4. Closing. The Closing shall take place at the offices of Vorys,
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Sater, Seymour and Pease LLP, Atrium Two, Suite 2100, 221 East Fourth Street,
Cincinnati, Ohio 45201 (or at such other place as the parties may mutually
agree), on the Closing Date. The Closing Date may be changed by mutual
agreement of the parties. If the Closing Date is so changed, all references
to the Closing Date in this Agreement shall refer to the changed date.
5. Closing Deliveries.
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5.1 Closing Deliveries by OCNJ. At the Closing, OCNJ will deliver
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or cause to be delivered to PIC and NAHC:
(a) the DOBI Order, which shall be acceptable in form and
substance to OCNJ, PIC and NAHC;
(b) a certificate of OCNJ in the form of Exhibit 5.1(b),
certifying as to the accuracy of OCNJ's representations and warranties as of
the Closing Date and that OCNJ has performed and complied with all of the
terms, provisions and conditions to be performed and complied with by it at
or before the Closing Date;
(c) a certificate of OCNJ in the form of Exhibit 5.1(c),
certifying as to certain corporate matters, together with all of the
attachments referred to therein; and
(d) such other certificates and documents as PIC, NAHC and
their counsel may reasonably request.
5.2 Closing Deliveries by PIC and NAHC. At the Closing, PIC and
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NAHC will deliver or cause to be delivered to OCNJ:
(a) a certificate of PIC and NAHC in the form of Exhibit
5.2(a), certifying as to the accuracy of PIC's and NAHC's representations and
warranties as of the Closing Date and that PIC and NAHC have performed and
complied with all of the terms, provisions and conditions to be performed and
complied with by them at or before the Closing Date;
(b) certificates of PIC and NAHC in the forms of Exhibit
5.2(b), certifying as to certain corporate matters, together with all of the
attachments referred to therein; and
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(c) such other certificates and documents as OCNJ and their
counsel may reasonably request.
5.3 Form and Substance of Documents. The documents and instruments
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referred to in Sections 5.1 and 5.2 shall be in form and substance
satisfactory to counsel for the party to whom they are delivered.
6. Representations and Warranties by OCNJ. OCNJ represents and
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warrants, to PIC and NAHC that the following representations and warranties
are true as of the date of this Agreement and will be true as of the Closing
Date:
6.1 Corporate Organization. OCNJ is a corporation duly organized,
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validly existing and in good standing under the laws of the state of its
incorporation, and OCNJ has the corporate power and authority to carry on the
business now being conducted by it.
6.2 Authorization; Enforceability. OCNJ has the requisite
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corporate power and authority to execute, deliver and perform its obligations
under this Agreement and under each of the other documents to be executed by
it in connection with this Agreement, as the case may be. The execution and
delivery by OCNJ of this Agreement and of the other documents to be executed
in connection with this Agreement, and the performance by OCNJ of its
obligations hereunder and thereunder, have been duly authorized by all
necessary corporate action on the part of OCNJ. This Agreement has been duly
executed and delivered by OCNJ and, subject to the due execution and delivery
hereof by PIC and NAHC, is a valid and binding obligation of OCNJ, enforceable
against OCNJ in accordance with its terms. As of the Closing Date, each
agreement to be executed and delivered by OCNJ in connection with this
Agreement will have been duly executed and delivered by OCNJ and, subject to
the due execution and delivery of such agreements by PIC and NAHC, each
agreement to be executed and delivered by OCNJ in connection with this
Agreement is a valid and binding obligation of OCNJ, as the case may be,
enforceable against OCNJ, as the case may be, in accordance with its terms.
6.3 No Violation. Neither the execution, delivery nor performance
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of this Agreement by OCNJ, nor the consummation of any of the transactions
provided for in this Agreement, (a) will violate or conflict with any
provision of the Articles or Certificate of Incorporation or Code of
Regulations or Bylaws of OCNJ, or (b) will result in any material breach of
or default under any provision of any contract or agreement of any kind to
which OCNJ is a party or by which OCNJ is bound or to which the properties
or assets of OCNJ are subject.
6.4 Litigation. There are no actions, suits, proceedings or
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investigations, either at law or in equity, or before any commission or other
administrative authority in any United States or foreign jurisdiction, of any
kind now pending or threatened or proposed in any manner, or any circumstances
which could reasonably form the basis of any such action, suit, proceeding or
investigation, except for those actions, proceedings, investigations or
inquiries which would not have a material adverse effect on OCNJ, involving
OCNJ or any of its properties or assets that (a) questions the validity of
this Agreement, or (b) seeks to delay, prohibit or restrict in any manner any
action taken or contemplated to be taken by OCNJ under this Agreement.
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6.5 Brokers. All negotiations relative to this Agreement and the
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transactions contemplated hereby have been carried on by OCNJ directly with
PIC and NAHC and in such manner as not to give rise to any valid claim against
OCNJ for a finder's fee, brokerage commission or like payment.
6.6 Disclosure. There is no event, occurrence or failure to
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disclose on the part of OCNJ that would result in the breach of any
representation or warranty made by OCNJ herein.
7. Representations and Warranties by PIC and NAHC. PIC and NAHC,
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jointly and severally, represent and warrant, to OCNJ that the following
representations and warranties are true as of the date of this Agreement and
will be true as of the Closing Date:
7.1 Corporate Organization. Each of PIC and NAHC is a corporation
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duly organized, validly existing and in good standing under the laws of the
state of its incorporation, and each of PIC and NAHC has the corporate power
and authority to carry on the business now being conducted by it.
7.2 Authorization; Enforceability. Each of PIC and NAHC has the
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requisite corporate power and authority to execute, deliver and perform its
obligations under this Agreement and under each of the other documents to be
executed by it in connection with this Agreement, as the case may be. The
execution and delivery by PIC and NAHC of this Agreement and of the other
documents to be executed by them in connection with this Agreement, and
the performance by PIC and NAHC of their respective obligations hereunder and
thereunder, have been duly authorized by all necessary corporate action on the
part of PIC and NAHC. This Agreement has been duly executed and delivered by
each of PIC and NAHC and, subject to the due execution and delivery hereof by
PIC and NAHC, is a valid and binding obligation of PIC and NAHC, enforceable
against PIC and NAHC in accordance with its terms. As of the Closing Date,
each agreement to be executed and delivered by PIC and NAHC in connection
with this Agreement will have been duly executed and delivered by PIC and
NAHC and, subject to the due execution and delivery of such agreements by
OCNJ, each agreement to be executed and delivered by PIC and NAHC in
connection with this Agreement is a valid and binding obligation of PIC and
NAHC, as the case may be, enforceable against PIC and NAHC, as the case may
be, in accordance with its terms.
7.3 No Violation. Neither the execution, delivery or performance
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of this Agreement by PIC or NAHC, nor the consummation of any of the
transactions provided for in this Agreement, (a) will violate or conflict
with any provision of the Articles or Certificate of Incorporation or Code of
Regulations or Bylaws of PIC or NAHC, or (b) will result in any material
breach of or default under any provision of any contract or agreement of any
kind to which either PIC or NAHC is a party or by which either PIC or NAHC is
bound or to which the properties or assets of PIC or NAHC are subject.
7.4 Litigation. Except for the defaults on indebtedness disclosed
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on Schedule 7.4, and except for those actions, proceedings, investigations or
inquiries which would not have a material adverse effect on PIC or NAHC,
there are no actions, suits, proceedings or investigations, either at law or
in equity, or before any commission or other administrative authority in any
United States or foreign jurisdiction, of any kind now pending or threatened or
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proposed in any manner, or any circumstances which could reasonably form
the basis of any such action, suit, proceeding or investigation, involving
PIC or NAHC or any of their respective properties or assets that (a)
questions the validity of this Agreement, or (b) seeks to delay, prohibit
or restrict in any manner any action taken or contemplated to be taken by PIC
or NAHC under this Agreement.
7.5 Brokers. Except as set forth on Schedule 16.2 referred to
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below, all negotiations relative to this Agreement and the transactions
contemplated hereby have been carried on by PIC and NAHC directly with OCNJ
and in such manner as not to give rise to any valid claim against PIC or NAHC
for a finder's fee, brokerage commission or like payment.
7.6 Financial Statements.
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(a) PIC previously has delivered to OCNJ true and complete
copies of its (i) annual audited statements as filed with the DOBI for the
calendar years 1998, 1999 and 2000, (ii) quarterly unaudited statements as
filed with the DOBI as of and for the calendar quarters ended March 31 and
June 30, 2001, and (iii) NAIC Insurance Expense Exhibits as filed with the
DOBI for the calendar years 1998, 1999, and 2000 (collectively, the "PIC
Financial Statements").
(b) NAHC previously has delivered to OCNJ true and complete
copies of its (i) annual audited financial statements for the years ended
1998, 1999 and 2000, and (ii) quarterly unaudited financial statements as and
for the calendar quarters ended March 31 and June 30, 2001 (collectively, the
"NAHC Financial Statements").
(c) Each of the PIC Financial Statements and NAHC Financial
Statements are in accordance with the books and records of each of PIC and
NAHC, respectively, have been prepared in accordance with statutory
accounting principles ("SAP") or generally accepted accounting principles
("GAAP"), respectively, applied on a consistent basis throughout the periods
covered by such statements, and present fairly the financial position of PIC
and NAHC, and the results of their operations, for the periods covered.
(d) There is no debt, liability, commitment or obligation of
any kind, character or nature whatsoever, whether known or unknown, choate or
inchoate, secured or unsecured, accrued, fixed, absolute, contingent or
otherwise, and whether due or to become due (collectively, "Liabilities")
other than those which are disclosed in the PIC Financial Statements and/or
NAHC Financial Statements, other than Liabilities that, either individually
or in the aggregate, are not material to the financial conditions and/or
operations of either PIC or NAHC.
(e) Each of the financial statements to be delivered by PIC
and NAHC to OCNJ under Section 9.6 of this Agreement shall be in accordance
with the books and records of PIC and NAHC, respectively, shall be prepared
in accordance with SAP or GAAP, respectively, applied on a consistent basis
throughout the periods covered by such financial statements, and shall present
fairly the financial position of PIC and NAHC, and the results of their
operations, for the periods covered.
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7.7 Reinsurance and Related Matters. Neither PIC nor NAHC has
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entered into any reinsurance transactions, made any reserve adjustments,
established a provision for loss and/or loss adjustment expenses, incurred or
obligated itself to incur any extraordinary expenses (including, without
limitation, deferred compensation or employee bonuses) and/or taken any other
actions or entered into any other transactions that will or could result in a
material reduction in income during the Specified Period.
7.8 Disclosure. There is no event, occurrence or failure to
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disclose on the part of either PIC or NAHC that would result in the breach of
any representation or warranty made by PIC or NAHC herein.
8. Covenants of OCNJ. OCNJ covenants and agrees with PIC and NAHC as
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follows:
8.1 Access, Information, Documents, Data and Information Services.
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(a) Subject to Section 9.3 and until the first anniversary of
the Nonrenewal Date, OCNJ will give to PIC and NAHC and to their agents and
representatives (including, but not limited to, accountants, lawyers and
appraisers) full and complete access during normal working hours to any and
all of the books, records and other documents of OCNJ relating to the Business,
to enable PIC and NAHC to make such examination of the books, records and
other documents of OCNJ as PIC and NAHC may determine; provided, however, that
this Section 8.1(a) shall not obligate OCNJ to disclose information subject
to attorney-client privilege relating to this Agreement and the transactions
contemplated hereunder.
(b) Subject to Section 9.3 and until the first anniversary of
the Nonrenewal Date, OCNJ will provide to PIC, at no cost to PIC, such data of
OCNJ as is required by PIC for underwriting purposes with respect to the
Business, in the format shown on Exhibit 8.1(b). In the event that OCNJ
should agree, from time to time or at any time, at the request of PIC or NAHC,
to provide other data or other information services to PIC or NAHC, OCNJ
shall be entitled to reimbursement from PIC and NAHC for all direct and
indirect costs and expenses (including, without limitation, all employee costs
and expenses) associated with providing such other data or other information
services. PIC and NAHC shall reimburse OCNJ for such costs and expenses
within fifteen (15) days after the end of the month in which such costs and
expenses are incurred by OCNJ. Upon notice to PIC specifying in reasonable
detail the basis for such set-off, OCNJ may set-off any amount to which it
may be entitled under this Section 8.1(b) against amounts otherwise payable
under this Agreement. The exercise of such right of set-off by OCNJ in good
faith, whether or not ultimately determined to be justified, will not
constitute an event of default under this Agreement. Neither the exercise
of nor the failure to exercise such right of set-off will constitute an
election of remedies or limit OCNJ in any manner in the enforcement of any
other remedies that may be available to it.
8.2 Consents and Approvals. OCNJ shall use its best efforts to
----------------------
obtain prior to the Closing all consents, authorizations and approvals under
all statutes, laws, ordinances, regulations, rules, judgments, decrees and
orders of any court or governmental agency, board, bureau, body, department
or authority or of any other person required to be obtained by OCNJ in
9
connection with the execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby.
8.3 Confidential Information. OCNJ shall exert reasonable efforts,
------------------------
at least as stringent as those employed by it for the preservation and
maintenance of its own proprietary information and trade secrets, to preserve
and maintain all proprietary information and trade secrets of PIC and NAHC and
its affiliates received or confirmed in documentary form by OCNJ from PIC or
NAHC and its affiliates and shall not disclose to any third person or use any
such proprietary information or trade secret for personal advantage, except
that OCNJ shall be free to use and disclose all or any of such proprietary
information and trade secrets which (i) were already in its possession at the
time of disclosure to it, (ii) are a matter of public knowledge, (iii) have
been or are hereafter published other than through OCNJ, or (iv) are lawfully
obtained by OCNJ from a third person without restrictions of confidentiality.
9. Covenants of PIC and NAHC.
-------------------------
9.1 No Dividends. For the Specified Period, no dividends shall be
------------
paid by PIC in excess of dividends necessary to service and/or pay-off
indebtedness of NAHC existing as of the date first herein above written and
disclosed on Schedule 3.2(a).
9.2 Withdrawal Plan. Each of PIC and NAHC shall cooperate with
OCNJ to ensure that OCNJ will be granted a waiver by the Commissioner of
the DOBI pursuant to N.J.A.C. 11:2-29.3(a) obviating the requirement that
OCNJ file a formal plan of withdrawal from the business of private passenger
automobile insurance in accordance with N.J.A.C. 11:2-29.4. The covenants of
PIC and NAHC contained in this Section 9.2 shall survive the Closing.
9.3 Confidential Information.
------------------------
(a) Each of PIC and NAHC shall exert reasonable efforts, at
least as stringent as those employed by it for the preservation and
maintenance of its own proprietary information and trade secrets, to preserve
and maintain all proprietary information and trade secrets of OCNJ and its
affiliates received or confirmed in documentary form by PIC or NAHC from OCNJ
and its affiliates and shall not disclose to any third person or use any such
proprietary information or trade secret for personal advantage, except that
PIC and NAHC shall be free to use and disclose all or any of such proprietary
information and trade secrets which (i) were already in its possession at the
time of disclosure to it, (ii) are a matter of public knowledge, (iii) have
been or are hereafter published other than through PIC or NAHC, or (iv) are
lawfully obtained by PIC or NAHC from a third person without restrictions of
confidentiality.
(b) Each of PIC and NAHC shall take all actions, if any,
required under the Gramm-Leach-Bliley Act and all New Jersey notice and
confidentiality statutes and regulations, including, without limitation,
N.J.S.A. 17:23A-4(a)(2) and N.J.S.A. 17:23A-13, with respect to the transfer
by OCNJ to PIC and/or NAHC of policyholder information related to the
Business. Each of PIC and NAHC agrees to provide notices required by N.J.S.A.
17:23A-4, if any, and not to disclose any policyholder information obtained
from OCNJ unless the disclosure would otherwise be permitted by (i) N.J.S.A.
17:23A-13 if made by an "insurance institution,"
10
"agent" or "insurance support organization," as those terms are defined in
N.J.S.A. 17:23A-2, (ii) the limits on reuse imposed by Section 502(c) of the
Gramm-Leach-Bliley Act, and (iii) the privacy statement of OCIC and its
insurance affiliates, a copy of which is attached hereto as Exhibit 9.3(b).
(c) The covenants of PIC and NAHC contained in this Section
9.3 shall survive the Closing.
9.4 Consents and Approvals. Each of PIC and NAHC shall use their
----------------------
best efforts to obtain prior to the Closing all consents, authorizations and
approvals under all statutes, laws, ordinances, regulations, rules,
judgments, decrees and orders of any court or governmental agency, board,
bureau, body, department or authority or of any other person required to be
obtained by PIC and NAHC in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby.
9.5 Reinsurance and Related Matters. Neither PIC nor NAHC will
-------------------------------
enter into any reinsurance transactions, make any reserve adjustments,
establish a provision for loss and/or loss adjustment expenses, incur or
obligate itself to incur any extraordinary expenses (including, without
limitation, deferred compensation or employee bonuses) and/or take any other
actions or enter into any other transactions that will or could result in a
material reduction in income during the Specified Period.
9.6 Financial Statements.
--------------------
(a) For the quarter ending September 30, 2001, and for each
quarter thereafter through and including the quarter in which the Closing
occurs, each of NAHC and PIC shall provide to OCNJ, within forty-five (45)
days after the end of each quarter, unaudited financial statements of NAHC
and PIC, consisting of a balance sheet (and the notes thereto) as of the end
of such quarter and a statement of income and retained earnings and changes
in financial position (and the notes thereto) for that quarter and for the
portion of the year then ended.
(b) For the calendar month in which the Closing occurs and
for each of the next twelve calendar months thereafter, each of NAHC and PIC
shall provide to OCNJ, within thirty (30) days after the end of each calendar
month, unaudited financial statements of NAHC and PIC, consisting of a
balance sheet (and the notes thereto) as of the end of such month and a
statement of income and retained earnings and changes in financial position
(and the notes thereto) for that month and for the portion of the year then
ended.
9.7 Annual Data. For the period ending on December 31 of any year
that includes a portion of the Specified Period, PIC shall provide to OCNJ,
by no later than the due date of the NAIC IEE, all data needed for purposes
of the calculation of net written premiums shown on Part II column 1 (Premium
Written) of PIC's NAIC IEE, as provided for by Section 3.2(c) hereof,
including, without limitation, the list of premium volume by agent for
purposes of such calculation.
9.8 Investment Policy. Commencing as of the Closing Date and
-----------------
continuing until the expiration of the Specified Period, PIC shall invest
its assets only in accordance with the investment guidelines set forth in
attached Exhibit 9.8.
11
9.9 Use of Proceeds. Commencing as of the Closing Date and
---------------
continuing until the expiration of the Specified Period, PIC shall use all
(100%) of the funds transferred to it by OCNJ pursuant to Section 3 of this
Agreement solely and exclusively for the purpose of supporting the Renewed
Business and to service and/or pay-off indebtedness of NAHC disclosed on
Schedule 3.2(a), as permitted under Sections 3.2(a) and 9.1. Without limiting
the generality of the foregoing, PIC shall not otherwise, directly or
indirectly, (a) use any of such funds to support the operations of NAHC
and/or any of its subsidiaries or affiliates, including but not limited to,
Capital Mutual Insurance Co., and/or (b) sell, transfer or otherwise assign
or cause to be sold, transferred or otherwise assigned any of such funds in
any way whatsoever (including, but not limited to, by dividend, distribution
or other similar means or methods) to NAHC and/or any of its subsidiaries or
affiliates.
9.10 Access, Information and Documents. At any time, and from time
---------------------------------
to time, PIC and NAHC will give to OCNJ and its agents and representatives
(including, but not limited to, accountants, lawyers and appraisers) full
and complete access during normal working hours to any and all of the books,
records and other documents of PIC, NAHC and their respective affiliates, for
any and all purposes related to this Agreement and the transactions
contemplated hereunder, including, without limitation, for the purpose of
calculating and confirming the amounts of the payments required to be made
by OCNJ by Section 3.2. The covenants of PIC and NAHC contained in this
Section 9.10 shall survive the Closing.
10. Conditions Precedent to Obligations of OCNJ. The obligations of
-------------------------------------------
OCNJ to close the transactions contemplated by this Agreement are subject to
the fulfillment prior to or at the Closing of the following conditions:
10.1 Performance of PIC and NAHC. There shall not be any material
---------------------------
error, misstatement or omission in the representations and warranties made by
PIC or NAHC in this Agreement; all representations and warranties by PIC and
NAHC contained in this Agreement or in any written statement delivered by PIC
and NAHC to OCNJ or any of its affiliates pursuant to this Agreement shall be
true in all material respects at and as of the Closing as though such
representations and warranties were made at and as of said time; and each of
PIC and NAHC shall have materially performed and complied with all the terms,
provisions and conditions of this Agreement to be performed and complied with
by PIC and NAHC at or before the Closing.
10.2 Regulatory Consents and Approvals. OCNJ and OCIC shall have
---------------------------------
obtained all consents, authorizations and approvals under all statutes, laws,
ordinances, regulations, rules, judgments, decrees and orders of any court or
governmental agency, board, bureau, body, department or authority or of any
other person required to be obtained by OCNJ and OCIC, including, but not
limited to, the Ohio Department of Insurance and the DOBI, as the case may be,
in connection with the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby, which approvals
will permit OCNJ to cease issuing new private passenger automobile policies
as of the Closing Date and commence issuance of notices of non-renewal as of
the Nonrenewal Date on terms acceptable to OCNJ.
10.3 Requirements Imposed by Regulatory Authorities. Any terms
----------------------------------------------
and conditions that may be imposed on the transactions contemplated by this
Agreement by the Ohio Department of Insurance or the DOBI shall be acceptable
to OCNJ, in its sole discretion.
12
10.4 Withdrawal. The Commissioner of the DOBI shall have granted
a waiver to OCNJ pursuant to N.J.A.C. 11:2-29.3(a) obviating the requirement
that OCNJ file a formal plan of withdrawal from the business of private
passenger automobile insurance in New Jersey in accordance with N.J.A.C.
11:2-29.4.
10.5 Due Diligence. OCNJ shall be satisfied with the results of
-------------
its due diligence investigation of the financial condition, businesses,
prospects and operations of PIC and NAHC.
10.6 Third Party Consents. OCNJ and its affiliates shall have
--------------------
secured approval or consent from all necessary third parties, including,
without limitation, all lenders.
10.7 Board of Directors. The Boards of Directors of OCNJ and OCIC
------------------
shall have approved of the terms and conditions of this Agreement and the
transactions contemplated by this Agreement.
10.8 Fairness Opinion. OCNJ shall have secured an opinion (or
----------------
other assurance acceptable to OCNJ) from its investment bankers regarding the
fairness of the transactions contemplated by this Agreement.
10.9 Employee Transition Agreement. OCIC, PIC and NAHC shall have
-----------------------------
executed and delivered the Employee Transition Agreement in the form of
Exhibit 10.9 (the "Employee Transition Agreement").
10.10 Subscription Agreement. OCIC and NAHC shall have executed
----------------------
and delivered the Subscription Agreement in the form of Exhibit 10.10 (the
"Subscription Agreement").
10.11 Non-Competition Agreement. OCNJ, OCIC, PIC and NAHC shall
-------------------------
have executed and delivered the Non-Competition Agreement in the form of
Exhibit 10.11 (the "Non-Competition Agreement").
11. Conditions Precedent to Obligations of PIC and NAHC. The obligations
---------------------------------------------------
of PIC and NAHC to close the transactions contemplated by this Agreement are
subject to the fulfillment prior to or at the Closing of the following
conditions:
11.1 Performance of OCNJ. There shall not be any material error,
-------------------
misstatement or omission in the representations and warranties made by OCNJ
in this Agreement; all representations and warranties by OCNJ contained in
this Agreement or in any written statement delivered by OCNJ to PIC or NAHC
pursuant to this Agreement shall be true in all material respects at and as
of the Closing as though such representations and warranties were made at
and as of said time; and OCNJ shall have materially performed and complied
with all the terms, provisions and conditions of this Agreement to be
performed and complied with by OCNJ at or before the Closing.
11.2 Regulatory Consents and Approvals. PIC and NAHC shall
---------------------------------
have obtained all consents, authorizations and approvals under all statutes,
laws, ordinances, regulations, rules, judgments, decrees and orders of any
court or governmental agency, board, bureau, body,
13
department or authority or of any other person required to be obtained by
PIC and NAHC, including, but not limited to, the Ohio Department of Insurance
and the DOBI, as the case may be, in connection with the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby, which approvals shall be on terms acceptable to PIC and
NAHC.
11.3 Requirements Imposed by Regulatory Authorities. Any terms and
----------------------------------------------
conditions that may be imposed on the transactions contemplated by this
Agreement by the Ohio Department of Insurance or the DOBI shall be acceptable
to PIC and NAHC, in their sole discretion.
11.4 Due Diligence. PIC and NAHC shall be satisfied with the
-------------
results of their due diligence investigation of the Business and financial
condition of OCNJ.
11.5 Third Party Consents. PIC and NAHC and each of their
--------------------
respective affiliates shall have secured approval or consent from all
necessary third parties.
11.6 Board of Directors. The Board of Directors of PIC and NAHC
------------------
shall have approved of the terms and conditions of this Agreement and the
transactions contemplated by this Agreement.
11.7 Employee Transition Agreement. OCIC, PIC and NAHC shall have
-----------------------------
executed and delivered the Employee Transition Agreement.
11.8 Subscription Agreement. OCIC and NAHC shall have executed and
----------------------
delivered, and closed the transactions contemplated by, the Subscription
Agreement.
11.9 Non-Competition Agreement. OCIC, OCNJ, PIC and NAHC shall
-------------------------
have executed and delivered the Non-Competition Agreement.
12. Termination.
-----------
12.1 Termination Events. This Agreement may, by notice given prior
------------------
to or at the Closing, be terminated:
(a) by either OCNJ, on the one hand, or PIC and NAHC, on the
other hand, if a material inaccuracy in or breach of, or any material failure
to perform or comply with, any representation, warranty, covenant, obligation
or other provision of this Agreement has been committed by the other party or
parties and such breach or failure has not been waived;
(b) by mutual consent of the parties; or
(c) by any party if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before December 31,
2001, or such later date as the parties may agree upon.
14
12.2 Effect of Termination. Each party's right of termination
---------------------
under Section 12.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not
be an election of remedies. If this Agreement is terminated pursuant to
Section 12.1, all further obligations of the parties under this Agreement
shall terminate, except that the obligations in Sections 9.3 and 13.5 shall
survive; provided, however, that if this Agreement is terminated by a party
because of such breach or failure by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement
is not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
13. Survival of Representations and Warranties; Indemnification.
-----------------------------------------------------------
13.1 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties contained in Section 6 and Section 7 shall
survive the Closing for a period of three years from and after the Nonrenewal
Date.
13.2 Indemnification Obligations of OCNJ. Subject to the terms and
-----------------------------------
conditions of this Section 13, OCNJ agrees to indemnify and hold PIC and NAHC
harmless against any and all losses, costs and expenses (including, without
limitation, legal and other expenses) resulting from or relating to:
(a) any material misrepresentation or breach of any warranty
of OCNJ contained in this Agreement or in any schedule of OCNJ or any
certificate delivered by OCNJ at the Closing;
(b) any material breach of any covenant of OCNJ contained in
this Agreement, including but not limited to the covenants set forth in
Section 2.6 hereof;
(c) the Prior Business (excluding any UEZ quotas and
assignments from the PAIP after the Nonrenewal Date); and
(d) and any and all actions, suits, demands, assessments or
judgments with respect to any claim arising out of or relating to the subject
matter of the indemnification.
13.3 Indemnification Obligations of PIC and NAHC. Subject to the
-------------------------------------------
terms and conditions of this Section 13, PIC and NAHC, jointly and severally,
agree to indemnify and hold OCNJ harmless against any and all losses, costs
and expenses (including, without limitation, legal and other expenses)
resulting from or relating to:
(a) any material misrepresentation or breach of any warranty
of PIC or NAHC contained in this Agreement or in any schedule of PIC or NAHC
or any certificate delivered by PIC or NAHC at the Closing;
(b) any material breach of any covenant of PIC or NAHC
contained in this Agreement, including but not limited to the covenants set
forth in Section 2.7 hereof;
15
(c) the Renewed Business (including any UEZ quotas and
assignments from the PAIP after the Nonrenewal Date); and
(d) and any and all actions, suits, demands, assessments or
judgments with respect to any claim arising out of or relating to the subject
matter of the indemnification.
13.4 Procedure for Indemnification Claims. The respective
------------------------------------
indemnification obligations of the parties pursuant to Sections 13.2 and 13.3
shall be conditioned upon compliance by the other parties with the following
procedures for indemnification claims based upon or arising out of any claim,
action or proceeding by any person not a party to this Agreement:
(a) If at any time a claim shall be made or threatened, or an
action or proceeding shall be commenced or threatened, against a party hereto
(the "Aggrieved Party") which could result in liability of the other party
(the "Indemnifying Party") under its indemnification obligations hereunder,
the Aggrieved Party shall give to the Indemnifying Party prompt notice of
such claim, action or proceeding. Such notice shall state the basis for the
claim, action or proceeding and the amount thereof (to the extent such amount
is determinable at the time when such notice is given) and shall permit the
Indemnifying Party to assume the defense of any such claim, action or
proceeding (including any action or proceeding resulting from any such claim).
Failure by the Indemnifying Party to notify the Aggrieved Party of its
election to defend any such claim, action or proceeding within a reasonable
time, but in no event more than fifteen days after notice thereof shall have
been given to the indemnifying Party, shall be deemed a waiver by the
Indemnifying Party of its right to defend such claim, action or proceeding;
provided, however, that the Indemnifying Party shall not be deemed to have
waived its right to contest and defend against any claim of the Aggrieved
Party for indemnification hereunder based upon or arising out of such claim,
action or proceeding.
(b) If the Indemnifying Party assumes the defense of any such
claim, action or proceeding, the obligation of the Indemnifying Party as to
such claim, action or proceeding shall be limited to taking all steps
necessary in the defense or settlement thereof and, provided the Indemnifying
Party is held to be liable for indemnification hereunder, to holding the
Aggrieved Party harmless from and against any and all losses, damages and
liabilities caused by or arising out of any settlement approved by the
Indemnifying Party or any judgment or award rendered in connection with such
claim, action or proceeding. The Aggrieved Party may participate, at its
expense, in the defense of such claim, action or proceeding provided that the
Indemnifying Party shall direct and control the defense of such claim, action
or proceeding. The Aggrieved Party agrees to cooperate and make available to
the Indemnified Party all books and records and such officers, employees and
agents as are reasonably necessary and useful in connection with the defense.
The Indemnifying Party shall not, in the defense of such claim, action or
proceeding, consent to the entry of any judgment or award, or enter into any
settlement, except in either event with the prior consent of the Aggrieved
Party, which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Aggrieved Party of a release from all
liability in respect of such claim, action or proceeding.
(c) If the Indemnifying Party does not assume the defense of
any such claim, action or proceeding, the Aggrieved Party may defend against
such claim, action or
16
proceeding in such manner as it may deem appropriate. The Indemnifying Party
agrees to cooperate and make available to the Aggrieved Party all books and
records and such officers, employees and agents as are reasonably necessary
and useful in connection with the defense. If the Indemnifying Party, within
ten days after notice shall have been given to it by the Aggrieved Party of
the latter's intention to effect a settlement of any such claim, action or
proceeding, which notice shall describe with particularity the terms of any
such proposed settlement, shall not deposit with an escrow mutually
satisfactory to the Aggrieved Party and the Indemnifying Party a sum
equivalent to the total amount demanded in such claim, action or proceeding
or deliver to the Aggrieved Party a surety bond or an irrevocable letter of
credit for such sum in form and substance reasonably satisfactory to the
Aggrieved Party, then the Aggrieved Party may settle such claim, action or
proceeding on the terms detailed in its notice to the Indemnifying Party, and
the Indemnifying Party shall be deemed to have agreed to the terms of such
settlement and shall not thereafter in any proceeding by the Aggrieved Party
for indemnification question the propriety of such settlement. If the
Indemnifying Party makes an escrow deposit or delivers a surety bond or
letter of credit as aforesaid and thereafter the Aggrieved Party settles such
claim, action or proceeding, then in any proceeding by the Aggrieved Party
for indemnification in the event the Indemnifying Party is held liable for
indemnification hereunder, the Aggrieved Party shall have the burden of
proving the amount of such liability of the Indemnifying Party, and the
amount of the payments made in settlement of any claim, action or proceeding
shall not be determinative as between the Aggrieved Party and the
Indemnifying Party of the amount of such indemnification liability, except
that the amount of the settlement payments shall constitute the maximum
amount of the indemnification liability of the Indemnifying Party. Such
escrow deposit, surety bond or letter of credit shall by their respective
terms be payable to the Aggrieved Party in an amount determined in accordance
with the last sentence of this paragraph (c) and in the event the Indemnifying
Party is held liable for indemnification hereunder. If the Indemnifying
Party neither makes an escrow deposit or delivers a surety bond or letter of
credit as aforesaid, so that no settlement of such claim, action or
proceeding is effected, in any proceeding by the Aggrieved Party for
indemnification in the event the Indemnifying Party is held liable for
indemnification hereunder, such liability shall be for the amount of any
judgment or award rendered with respect to such claim or in such action or
proceeding and of all expenses, legal and otherwise, incurred by the Aggrieved
Party in the defense against such claim, action or proceeding.
(d) In the event an Aggrieved Party or Indemnifying Party shall
cooperate in the defense or make available books, records, officers, employees
or agents, as required by the terms of paragraphs (b) and (c), respectively,
of this Section 13.4 the party to which such cooperation is provided shall
pay the out-of-pocket costs and expenses (including legal fees and
disbursements) of the party providing such cooperation and of its officers,
employees and agents reasonably incurred in connection with providing such
cooperation, but shall not be responsible to reimburse the party providing
such cooperation for such party's time or the salaries or costs of fringe
benefits or other similar expenses paid by the party providing such
cooperation to its officers and employees in connection therewith.
13.5 Right of Set-Off. Upon notice to the Indemnifying Party
----------------
specifying in reasonable detail the basis for such set-off, an Aggrieved
Party may set-off any amount to which it may be entitled under this Section
13 against amounts otherwise payable to the Indemnifying Party under this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-
17
off will constitute an election of remedies or limit the Aggrieved Party
in any manner in the enforcement of any other remedies that may be available
to it.
14. Disclosures. Because the shares of OCNJ's ultimate parent
-----------
corporation, Ohio Casualty Corporation ("OCC"), are publicly traded, OCC may
be required to make public disclosure of this Agreement and the transactions
contemplated by this Agreement. Each of PIC and NAHC shall cooperate fully
with OCC and OCNJ, making such public disclosures as OCC and OCNJ conclude
from time to time are necessary and appropriate under the circumstances.
15. Names. No party to this Agreement shall use the name or any
-----
trademark, trade name, logo or service mark of any other party or any of their
respective affiliates in any manner, without the prior written consent of the
applicable party.
16. Miscellaneous.
-------------
16.1 Assurance of Further Action. From time to time after the
---------------------------
Closing, each party (at its own expense), shall execute and deliver, or cause
to be executed and delivered, to the other parties such further documents and
take such other action as the other parties may reasonably request in order
to more effectively consummate the transactions contemplated hereby.
16.2 Expenses. If and only if the transaction closes, and subject
--------
to OCNJ's review of the consulting arrangement, as identified on Schedule 16.2,
OCNJ shall reimburse PIC for all reasonable success fees, which will not exceed
$822,000, incurred by it and paid to unaffiliated third parties in connection
with the transactions contemplated by this Agreement, with OCNJ, in its sole
discretion, determining whether and in what amounts any such fees may or may
not be reasonable. This reimbursement shall be paid in twelve (12) equal
monthly installments on the first business day of each month by wire transfer,
concurrently with the payments to be made under Section 3.1 hereof. Except
as set forth in the preceding sentence or elsewhere in this Agreement, each
party shall bear its own legal, accounting, administrative and other costs
and expenses incurred by it in connection with the preparation and
negotiation of this Agreement and the terms and provisions of this Agreement.
16.3 Waiver. The parties hereto may by written agreement (i)
------
extend the time for or waive or modify the performance of any of the
obligations or other acts of the parties hereto, or (ii) waive any
inaccuracies in the representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement.
16.4 Notices. All notices, requests or other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed first class certified mail, postage prepaid, addressed as
follows:
18
If to OCNJ, to:
Ohio Casualty of New Jersey, Inc.
9450 Seward Road
Fairfield, Ohio 45014
Attention: Debra K. Crane, Esq.
Senior Vice President and General Counsel
With a copy to:
James A. Yano, Esq.
Vorys, Sater, Seymour and Pease LLP
52 East Gay Street
Columbus, Ohio 43215
If to PIC, to:
Proformance Insurance Company
303 West Main Street
Freehold, New Jersey 07728
Attention: James V. Gorman, Chairman and CEO
With a copy to:
John M. Pellecchia, Esq.
Riker, Danzig, Sherer, Hyland & Perretti LLP
50 West State Street, Suite 1010
Trenton, New Jersey 08608-1220
If to NAHC, to:
National Atlantic Holdings Corp.
303 West Main Street
Freehold, New Jersey 07728
Attention: James V. Gorman, Chairman and CEO
With a copy to:
John M. Pellecchia, Esq.
Riker, Danzig, Sherer, Hyland & Perretti LLP
50 West State Street, Suite 1010
Trenton, New Jersey 08608-1220
or to such other address as may have been furnished in writing to the party
giving the notice by the party to whom notice is to be given.
19
16.5 Entire Agreement. Except only for the Confidentiality
----------------
Agreement and its Addendum among the parties dated June 15, 2001 (which shall
survive the execution of this Agreement and the Closing contemplated hereby),
this Agreement supersedes all prior agreements among the parties with respect
to its subject matter (including, but not limited to, the non-binding letter
of intent among the parties dated September 10, 2001). This Agreement
embodies the entire agreement among the parties and there have been and are
no agreements, representations or warranties, oral or written among the
parties other than those set forth or provided for in this Agreement. This
Agreement may not be modified or changed, in whole or in part, except by a
supplemental agreement signed by each of the parties.
16.6 Rights Under this Agreement; Nonassignability. This Agreement
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shall bind and inure to the benefit of the parties hereto and their
respective successors and assigns, but shall not be assignable by any party
without the prior written consent of the other parties, which may be withheld
in their sole discretion. Nothing contained in this Agreement is intended to
confer upon any person, other than the parties to this Agreement and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
16.7 Governing Law. This Agreement shall be governed by and
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construed in accordance with the laws of the State of Ohio, without regard to
conflict of law principles. The parties agree that any dispute regarding this
Agreement shall be submitted to the state or federal courts located in
Hamilton County, Ohio, and each of PIC and NAHC hereby consent to the exercise
of jurisdiction by any such court over it.
16.8 Headings: References to Sections, Exhibits and Schedules. The
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headings of the Sections, Paragraphs and Subparagraphs of this Agreement are
solely for convenience and reference and shall not limit or otherwise affect
the meaning of any of the terms or provisions of this Agreement. The
references herein to Sections, Exhibits and Schedules, unless otherwise
indicated, are references to Sections of and Exhibits and Schedules to this
Agreement. All Exhibits and Schedules referred to in this Agreement are
incorporated herein by reference and made a party hereof.
16.9 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which shall be an original, but which together
constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers, effective as of the day and year set forth
above.
OHIO CASUALTY OF NEW JERSEY, INC.
By: /s/ Elizabeth M. Riczko
-----------------------------
Printed Name: Elizabeth M. Riczko
-------------------
Title: Executive Vice President
and Chief Operating Officer,
Personal Lines
--------------------------
PROFORMANCE INSURANCE COMPANY
By: /s/ James V. Gorman
-----------------------------
Printed Name: James V. Gorman
-------------------
Title: Chief Executive Officer
--------------------------
NATIONAL ATLANTIC HOLDINGS CORP.
By: /s/ James V. Gorman
-----------------------------
Printed Name: James V. Gorman
-------------------
Title: Chief Executive Officer
--------------------------
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LIST OF EXHIBITS AND SCHEDULES
TO
REPLACEMENT CARRIER AGREEMENT
Exhibits Description
- -------- -----------
2.5A (OCNJ) Notice of Nonrenewal
2.5B (PIC) Guaranteed Option to Renew
2.8A (PIC) PIC's Notice to OCNJ Agents
2.8B (PIC) PIC's Notice to Active Cancelled Agents
2.8C (OCNJ) OCNJ's Notice to OCNJ Agents and Active Cancelled Agents
5.1(b) (OCNJ) Certificate of OCNJ of Representations and Warranties
5.1(c) (OCNJ) Certificate of OCNJ Certifying Certain Corporate Matters
5.2(a) (PIC) Certificate of PIC and NAHC of Representations and Warranties
5.2(b) (PIC) Certificate of PIC and NAHC Certifying Certain Corporate
Matters
8.1(b) (OCNJ) Format of Data
9.3(b) (OCNJ) Privacy Statement of OCIC and its Insurance Affiliates
9.8 (PIC) Investment Guidelines
10.9 (OCIC)* Employee Transition Agreement
10.10 (PIC)* Subscription Agreement
10.11 (OCIC)* Non-Competition Agreement
Schedules Description
- --------- -----------
3.2(a) (PIC) NAHC Indebtedness
3.2(c) (OCIC) Worksheet
7.4 (PIC) Defaults on Indebtedness
16.2 (PIC) Consulting Arrangements
*Corporation will furnish agreements to Securitires and Exchange Commission
upon further request.
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