EXECUTION COPY
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STOCK AND ASSET PURCHASE AGREEMENT
DATED AS OF JULY 12, 1999
BETWEEN
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
METROPOLITAN PROPERTY & CASUALTY INSURANCE COMPANY
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TABLE OF CONTENTS
Page
1. DEFINITIONS..............................................................2
2. PURCHASE AND SALE OF SHARES AND ASSETS...................................9
(a) Basic Transaction....................................................9
(b) Closing.............................................................10
(c) Deliveries at the Closing...........................................11
(d) Post-Closing Adjustment.............................................11
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES...................13
(a) Representations and Warranties of Seller............................13
(b) Representations and Warranties of Buyer.............................15
(c) Memorandum, Disclaimer of Projections...............................17
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE SPPI AFFILIATES...........18
(a) Organization, Qualification, Corporate Power and Authorization......19
(b) Noncontravention....................................................19
(c) Assets..............................................................21
(d) Capitalization; Subsidiaries........................................22
(e) Financial Information and Statutory Reports.........................22
(f) Events Subsequent to March 31, 1999.................................23
(g) Legal Compliance....................................................25
(h) Tax Matters.........................................................25
(i) Certain Employee Matters............................................26
(j) Licenses and Permits................................................27
(k) Contracts...........................................................28
(l) Owned Real Property.................................................29
(m) Actions and Proceedings.............................................29
(n) Intellectual Property...............................................30
(o) Reinsurance and Coinsurance.........................................31
(p) Agents and Brokers..................................................31
(q) Actuarial Reports...................................................32
(r) IRIS Ratios.........................................................32
(s) Pools and Facility Arrangements; Service Agreements.................32
(t) Bank Accounts.......................................................32
(u) Environmental Matters...............................................32
(v) Insurance Business..................................................34
(w) Employee Relations..................................................34
(x) Insurance...........................................................34
(y) Books and Records...................................................35
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5. PRE-CLOSING COVENANTS...................................................35
(a) General.............................................................35
(b) Regulatory Approvals................................................35
(c) Operation of Business...............................................35
(d) Corporate Examinations and Investigations; Confidentiality..........37
(e) Notice of Developments..............................................37
(f) Reinsurance Matters.................................................37
(g) Other Agreements....................................................37
(h) Additional Financial Statements.....................................38
(i) Pre-Closing Maintenance of Insurance................................38
(j) Preservation of Licenses............................................38
(k) Intercompany Accounts...............................................38
(l) Provision of Services to Seller.....................................38
(m) Year 2000 Matters...................................................38
(n) Florida Hurricane Catastrophe Fund..................................38
(o) Hurricane Catastrophe Records.......................................39
(p) Cooperation.........................................................39
6. POST-CLOSING COVENANTS..................................................39
(a) General; Confidentiality............................................39
(b) Cooperation.........................................................40
(c) Transition to Buyer Policy Forms....................................40
(d) Employees and Employee Benefits.....................................41
(e) Tax Matters.........................................................45
(f) Use of Names........................................................51
(g) Transfer of Data....................................................51
(h) Non-Competition.....................................................52
(i) Agent Incentive Programs............................................53
7. CONDITIONS TO OBLIGATION TO CLOSE.......................................54
(a) Conditions to Obligation of Buyer...................................54
(b) Conditions to Obligation of Seller..................................56
8. REMEDIES FOR BREACHES OF THIS AGREEMENT AND INDEMNITY...................57
(a) Survival of Representations and Warranties..........................57
(b) Indemnification Provisions for Benefit of Buyer.....................57
(c) Indemnification Provisions for Benefit of Seller....................58
(d) Matters Involving Third Parties.....................................59
(e) Mitigation..........................................................60
(f) Determination of Adverse Consequences...............................60
(g) Exclusive Remedy....................................................60
9. TERMINATION.............................................................61
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(a) Termination of Agreement....................................61
(b) Effect of Termination.......................................61
10. MISCELLANEOUS...........................................................61
(a) Press Releases and Public Announcements.....................61
(b) No Third Party Beneficiaries................................62
(c) Entire Agreement............................................62
(d) Succession and Assignment...................................62
(e) Counterparts................................................62
(f) Headings....................................................62
(g) Notices.....................................................62
(h) GOVERNING LAW...............................................64
(i) SUBMISSION TO JURISDICTION..................................64
(j) Amendments and Waivers......................................64
(k) Severability................................................64
(l) Expenses....................................................65
(m) Incorporation of Exhibits, Annexes and Schedules............65
(n) Gender and Number...........................................65
List of Exhibits
Exhibit A-1 - Form of Seller Reinsurance and Facility Agreement
Exhibit A-2 - Form of Buyer Reinsurance and Facility Agreements
Exhibit B-1 - Form of Seller Bill of Sale and Assignment (SPPI Assets)
Exhibit B-2 - Form of Buyer Bill of Sale and Assignment (Retained Business
Assets and Non-SPPI Assets)
Exhibit C - Form of Assumption of Liabilities agreement (Transferred
Liabilities)
Exhibit D - Form of Commutation Agreement
Exhibit E-1 - Form of Master Services Agreement
Exhibit E-2 - Form of Buyer Services Agreement
Exhibit F - Form of Reserve Agreement
Exhibit G - Specified Employees
Exhibit H - Valuation Firms
Exhibit I - Forms of agency agreements
Schedule I - SPPI Entities
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STOCK AND ASSET PURCHASE AGREEMENT
This STOCK AND ASSET PURCHASE AGREEMENT, dated as of July 12, 1999 (the
"Agreement"), is entered into by and between ST. PAUL FIRE AND MARINE INSURANCE
COMPANY, a Minnesota insurance corporation ("Seller"), and METROPOLITAN PROPERTY
AND CASUALTY INSURANCE COMPANY, a Rhode Island insurance corporation ("Buyer").
Buyer and Seller are referred to herein collectively as the "Parties."
WITNESSETH:
WHEREAS, Seller wishes to sell, and Buyer wishes to purchase, Seller's SPPI
Business (as defined herein), including the assets principally utilized by
Seller or its affiliates in connection with the SPPI Business, which assets are
identified in ss.1(a) of the Seller Disclosure Schedule;
WHEREAS, the business engaged in by Economy Fire & Casualty Company, an
Illinois stock property-casualty insurance corporation and a direct wholly-owned
subsidiary of Seller ("Economy"), and Economy's wholly-owned subsidiaries
Economy Preferred Insurance Company, an Illinois insurance corporation ("EPIC"),
and Economy Premier Assurance Company, an Illinois insurance corporation ("EPAC"
and, together with EPIC, the "Companies") (Economy and the Companies,
collectively, the "Economy Companies") is primarily related to personal lines
insurance;
WHEREAS, Seller wishes to sell and Buyer wishes to purchase all of the
outstanding shares of common stock (the "Shares") of Economy, pursuant to the
terms and subject to the conditions of this Agreement;
WHEREAS, pursuant to a reinsurance agreement among Economy, EPIC and EPAC,
EPIC and EPAC have ceded all of their policy obligations to Economy;
WHEREAS, Seller wishes to assume and each of the Economy Companies wishes
to cede such companies' liabilities under policies other than SPPI Policies (as
defined herein) written by such companies pursuant to a reinsurance agreement
substantially in the form attached hereto as Exhibit A-1, between Economy and
Seller (the "Seller Reinsurance and Facility Agreement") immediately prior to
Buyer's acquisition of the Shares;
WHEREAS, Seller wishes to cede and Buyer wishes to assume certain of the
liabilities of Seller and its affiliates, other than the Economy Companies,
under SPPI Policies through reinsurance agreements, each substantially in the
form attached hereto as Exhibit A-2 (the "Buyer Reinsurance and Facility
Agreements"); and
WHEREAS, Seller wishes to transfer to Buyer, and Buyer wishes to accept,
Seller's Business Employees (as defined herein);
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants, agreements and indemnities set forth in
this Agreement, the Parties agree as follows:
1. DEFINITIONS
"Accrued Bonuses" shall have the meaning set forth in ss.6(d)(v)(E).
"Adverse Consequences" means all actions, suits, proceedings, claims,
injunctions, judgments, orders, decrees, rulings, damages, penalties, fines,
costs, reasonable amounts paid in settlement, liabilities, losses, expenses and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
ss.1504 or any similar group defined under a similar provision of state law.
"Aggregate Purchase Price" has the meaning set forth in ss.2(a).
"Allocation Statement" has the meaning set forth in ss.6(e)(xv).
"Applicable Rate" means LIBOR plus one percent.
"Arbiter" has the meaning set forth in ss.2(d)(v).
"Assumption Agreement" means the Assumption of Liabilities agreement
between Seller and Buyer, substantially in the form attached hereto as Exhibit
C.
"Bills of Sale" means the bills of sale and assignment (or other
appropriate instruments of transfer, including in the case of SPPI IP,
instruments of assignment suitable for recording at the U.S. Patent & Trademark
Office, the U.S. Copyright Office or equivalent agencies in other relevant
jurisdictions where applicable), substantially in the forms attached hereto as
Exhibits B-1 and B-2, respectively, assigning and transferring to Buyer the
SPPI Assets and assigning and transferring to Seller the Non SPPI Assets (as
defined therein).
"Bonus Eligible Employees" shall have the meaning set forth in
ss.6(d)(v)(E).
"Books and Records" means the originals or copies of all records (including
computer generated, recorded or stored records) to the extent relating to the
SPPI Business, including customer lists, policy information, insurance contract
forms and rating plans, claim records, sales records, underwriting records,
financial records, human resources records, including without limitation,
employee ratings, and compliance records in the possession or control of any of
the
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SPPI Affiliates, including any form of recorded, computer generated or stored
information or process, but excluding any such records that are subject to the
attorney-client or other legal privileges.
"Business Day" means a day other than a Saturday, Sunday or a day on which
banks in New York, New York, are authorized or obligated by law or executive
order to close.
"Business Employees" has the meaning set forth in ss.6(d)(i).
"Buyer DC Plan" has the meaning set forth in ss.6(d)(ii).
"Buyer Y2K Plan" has the meaning set forth in ss.3(b)(viii).
"Buyer Disclosure Schedule" has the meaning set forth in ss.3(b).
"Buyer Indemnitee" has the meaning set forth in ss.8(b)(i).
"Buyer Reinsurance and Facility Agreements" has the meaning set forth in
the recitals to this Agreement.
"Buyer Services Agreement" has the meaning set forth in ss.5(1).
"Closing" has the meaning set forth in ss.2(b).
"Closing Balance Sheet" has the meaning set forth in ss.2(d)(ii).
"Closing Date" has the meaning set forth in ss.2(b).
"COBRA" has the meaning set forth in ss.6(d)(v)(D).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commutation Agreement" means the Commutation Agreement between Economy and
Seller, substantially in the form attached hereto as Exhibit D.
"Companies" has the meaning set forth in the recitals to this Agreement.
"Competition Laws" shall mean statutes, rules, regulations, orders,
decrees, administrative and judicial doctrines, and other laws that are designed
or intended to prohibit, restrict or regulate actions having the purpose or
effect of monopolization or restraint of trade.
"Confidential Information" means, with respect to any Person, any written,
oral or other information relating to it or concerning its business or affairs
other than information which (i) is already in the possession of another Person,
provided that such information is not known by such
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Person to be subject to a confidentiality agreement with or other obligation of
secrecy to the first Person or another party, or (ii) becomes generally
available to the public other than as a result of a breach of a confidentiality
obligation, or (iii) becomes available to another Person on a non-confidential
basis from a source other than the first Person, provided that such source is
not known by such Person to be bound by a confidentiality agreement with or
other obligation of secrecy to the first Person or another party, or (iv) was or
is independently developed by another Person without use of any material or
information provided by the first Person.
"Economy Companies" has the meaning set forth in the recitals to this
Agreement.
"Economy Returns" has the meaning set forth in ss.4(h).
"Economy's Balance Sheet" has the meaning set forth in ss.2(d)(ii).
"Environmental Law" has the meaning set forth in ss.4(u).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
which is under common control with Seller (immediately prior to the Closing
Date) pursuant to ss.414(b) or (c) of the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Determination" has the meaning set forth in ss.6(e)(vii).
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"GAAP Statements" has the meaning set forth in ss.4(e)(i).
"Government Entity" means any foreign, federal, state, local, municipal,
county or other governmental, quasi-governmental, administrative or regulatory
authority, body, agency, court, tribunal, commission or other similar entity
(including any branch, department, agency or political subdivision thereof).
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in ss.8(d)(i).
"Indemnifying Party" has the meaning set forth in ss.8(d)(i).
"Intellectual Property" has the meaning set forth in ss.4(n)(ii).
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"Knowledge" means actual knowledge, or reason to know, with respect to any
matters within the scope of a Specified Employee's responsibilities.
"Laws" has the meaning set forth in ss.3(a)(iii).
"Leasing Period" has the meaning set forth in ss.6(d)(vi).
"LIBOR" means the arithmetic mean of the offered rates for deposits in
United States dollars for a period of three months which appear on the Reuters
Screen LIBOR Page as of 11:00 A.M., London time, on the day that is two London
banking days prior to the date of determination of LIBOR (converted into
decimals between 0 and 1 if expressed as percentages). "Reuters Screen LIBOR
Page" means the page designated as Page "LIBOR" (or such other page as may
replace Page "LIBOR" for the purpose of displaying London interbank offered
rates of major banks) on the Reuters Monitor Money Rate Service (or such other
nationally recognized information service as may be agreed to by the Parties).
"Licenses" has the meaning set forth in ss.4(j).
"Lien" means any mortgage, pledge, lien, encumbrance, charge, security
interest, conditional sale or title retention arrangement, option or right of
first refusal, other than (a) mechanic's or materialmen's liens and other liens
arising by operation of law, (b) liens for taxes not yet due and payable or for
taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other individual liens arising in the
Ordinary Course of Business, that do not exceed $100,000.
"Master Services Agreement" means the Master Services Agreement between
Seller and Buyer substantially in the form attached as Exhibit E-1 hereto.
"Material Adverse Effect" means, with respect to the SPPI Business or any
specified Person or Persons, a material adverse effect on the financial
condition or business of the SPPI Business or such Person or Persons, as the
case may be.
"New Affiliate" has the meaning set forth in ss.6(h)(iii).
"Ordinary Course of Business" means, with respect to the SPPI Business or
any Person, the ordinary course of business of the SPPI Business or that Person,
as the case may be, consistent with past custom and practice.
"Party" has the meaning set forth in the preface.
"Pension Plan" has the meaning set forth in ss.4(i).
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"Person" means an individual, a partnership, a limited liability company, a
corporation, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a Government Entity.
"Personal Lines Agents" has the meaning set forth in ss.6(h)(ii).
"Plans" has the meaning set forth in ss.4(i).
"Post-Closing Tax Period" has the meaning set forth in ss.6(e).
"Reinsurance Agreements" means the Buyer Reinsurance and Facility
Agreements and the Seller Reinsurance and Facility Agreement.
"Reserve Agreement" means the Reserve Agreement between the Parties
substantially in the form attached hereto as Exhibit F.
"Resolution Period" has the meaning set forth in ss.2(d)(iv).
"Retained Business" means all of the insurance business underwritten by the
Economy Companies other than the SPPI Business.
"Revised Statements" has the meaning set forth in ss.6(e)(xv).
"SAP" has the meaning set forth in ss.4(e)(iii).
"Section 338(h)(10) Elections" has the meaning set forth in ss.6(e)(xv).
"Securities Act" means the Securities Act of 1933, as amended.
"Seller DC Plan" has the meaning set forth in ss.6(d)(ii).
"Seller Disclosure Schedule" has the meaning set forth in ss.3(a).
"Seller Indemnitee" has the meaning set forth in ss.8(c)(i).
"Seller Reinsurance and Facility Agreement" has the meaning set forth in
the recitals to this Agreement.
"Seller Retirement Plan" has the meaning set forth in ss.6(d)(iii).
"Seller Returns" has the meaning set forth in ss.4(h).
"Seller Y2K Plan" has the meaning set forth in ss.3(a)(vii).
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"Shares" has the meaning set forth in the recitals to this Agreement.
"Specified Employees" means the persons listed on Exhibit G hereto.
"SPPI Affiliates" means the Economy Companies and the SPPI Entities.
"SPPI Agents" has the meaning set forth in ss.4(p).
"SPPI Assets" means:
(a) all of Seller's direct and indirect rights to and interest in the
policies, contracts and binders of SPPI Business issued by the SPPI
Entities (the "SPPI Policies"), and all of Seller's direct and indirect
rights to and interest in the expirations and renewals on all SPPI
Policies, including, without limitation, all rights to complete processing
and to bill and/or receive premiums, commissions or other revenues whether
as additional, contingent or bonus commissions or otherwise with respect to
the SPPI Policies, it being acknowledged by the Parties that Seller's and
its Affiliates' agents have ownership rights with respect to their
expirations;
(b) all expiration files and customer account records, one copy of any
other paper or electronic file relating to each SPPI Policy, and, to the
extent there are any, the underwriting, claims, processing and other
manuals, to the extent relating to the SPPI Policies, it being acknowledged
by the Parties that Seller's and its Affiliates' agents have ownership
rights with respect to their business records;
(c) copies of all policy forms and rate filings related to such policy
forms, and all other regulatory filings relating to the SPPI Policies, in
each case since January 1, 1995; and
(d) all of Seller's and the SPPI Entities' assets principally utilized
in connection with the SPPI Business, other than those listed in paragraphs
(a) through (c) of this definition, as identified in ss.1(a) of the Seller
Disclosure Schedule (it being understood that such assets do not include
investment assets).
The terms "expiration" and "renewal" as used in this definition refer to the
ability of an insurance agent, broker or other producer to cause a policy, upon
expiration, to be renewed with the same carrier.
"SPPI Business" means all of the United States personal lines insurance
business of Seller and its subsidiaries, other than: (A) personal lines
insurance business underwritten by (i) the Catastrophe Risk Unit of St. Paul's
Commercial Lines Group (including business currently written by Geovera
Insurance Company and USF&G Specialty Insurance Company), (ii) Victoria Fire &
Casualty Co., (iii) Titan Indemnity Company, (iv) Titan Insurance Company, (v)
Victoria Insurance Co., (vi) Victoria Automobile Insurance Co. and (vii)
Victoria National
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Insurance Co.; and (B) Kentucky personal lines business reinsured by The Ohio
Casualty Company.
"SPPI Entities" means Seller and all Affiliates of Seller, other than the
Economy Companies, carrying out any portion of the SPPI Business, as set forth
in Schedule I hereto, but for purposes of ss.ss.4 and 5 hereof only to the
extent of and in relation to the SPPI Business.
"SPPI IP" has the meaning set forth in ss.4(n)(ii).
"SPPI Policies" has the meaning set forth in the definition of SPPI Assets.
"SPPI Transferred Employees" has the meaning set forth in ss.5(c).
"St. Paul" means The St. Paul Companies, Inc., the parent company of
Seller.
"St. Paul Reinsurance Agreements" has the meaning set forth in ss.4(o).
"Statutory Statements" has the meaning set forth in ss.4(e)(ii).
"Tax Asset" means any net operating loss, net capital loss, foreign tax
credit or any other Tax credit or Tax attribute which could reduce Taxes.
"Tax Benefit" has the meaning set forth in ss.6(e)(x).
"Tax Reserves" has the meaning set forth in ss.6(e)(i).
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto.
"Tax" and "Taxes" mean (i) any federal, foreign, state or local income,
business, alternative or add-on minimum tax, gross income, gross receipts,
sales, use, ad valorem, value added, transfer, transfer gains, net worth,
franchise, profits, license, withholding, payroll, employment, salaries,
interest, production, excise, severance, stamp, occupation, premium, property
(real or personal), environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest, penalty, addition to tax or additional amount
imposed by any governmental or taxing authority and (ii) any liability of the
relevant person or any subsidiary of the relevant person for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group.
"Third Party Claim" has the meaning set forth in ss.8(d)(i).
"Transaction Documents" means this Agreement, the Master Services
Agreement, the Reinsurance Agreements, the Commutation Agreement, the Reserve
Agreement, the Buyer
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Services Agreement, the Bills of Sale, the Assumption Agreement and any other
material agreement the Parties may enter into prior to Closing in connection
with the transactions contemplated by this Agreement.
"Transfer Date" has the meaning set forth in ss.6(d)(ii).
"Transferred Liabilities" means all liabilities of the SPPI Entities
relating to the SPPI Business other than liabilities relating to the SPPI
Policies, as set forth in ss.1(b) of the Seller Disclosure Schedule.
"Umpire" has the meaning set forth in ss.2(d)(v).
"Unallocated loss adjustment expenses" or "ULAE" means those expenses
necessary for the adjustment of losses other than expenses allocated to a
particular claim.
"Unresolved Changes" has the meaning set forth in ss.2(d)(v).
"Valuation Firms" means one or more valuation firms, as applicable,
selected by Seller and Buyer from the firms listed on Exhibit H hereto, or
otherwise.
2. PURCHASE AND SALE OF SHARES AND ASSETS
(a) Basic Transaction. Subject to the terms and conditions of this
Agreement:
(i) Buyer agrees to purchase from Seller, and Seller agrees to sell,
convey, transfer, assign and deliver to Buyer the Shares;
(ii) Buyer agrees to enter into the Buyer Reinsurance and Facility
Agreements with respect to, among other things, the in-force SPPI Policies
written by the SPPI Entities, to purchase the SPPI Assets from Seller, and
to pay ceding commissions to Seller as set forth in the Buyer Reinsurance
and Facility Agreements;
(iii) Buyer agrees to pay Seller a fee in consideration of Seller's
agreement to facilitate the orderly transfer of business, including
policies and agents, to Buyer;
(iv) Buyer agrees to pay Seller a fee in consideration of Seller's
agreement not to compete with Buyer in the SPPI Business for a period of
five years pursuant to ss.6(h) hereof; and
(v) Buyer agrees to enter into the Assumption Agreement with respect to
the Transferred Liabilities.
(vi) The "Aggregate Purchase Price" paid by Buyer to Seller in
consideration of the transactions referred to in paragraphs (i) through
(iv) above shall be an amount in
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cash equal to (A) $315,000,000 plus (B) the value of Economy's statutory
capital and surplus as of the Closing Date plus (C) the difference (whether
positive or negative) between the market value of the Economy Companies'
invested assets as of the Closing Date, as certified by the Valuation
Firms, and the statutory book value of those invested assets. In addition,
if Buyer does not make a Section 338(h)(10) Election pursuant to
ss.6(e)(xv) hereof, the amount determined under the previous sentence shall
be (x) reduced, in the event that the market value of the invested assets
exceeds the tax basis in such assets, by an amount equal to 35% of such
excess or (y) increased, in the event that the tax basis of such assets
exceeds the market value of such assets, by an amount equal to 35% of such
excess.
(vii) The Aggregate Purchase Price will be allocated among the various
items set forth in the foregoing clauses (i) through (iv) in amounts
mutually agreed by the Parties within 10 days after agreement as to the
Closing Balance Sheet has been reached pursuant to ss.2(d) hereof, but in
no event later than 180 days after the Closing Date. The Parties further
agree that the amount of the Aggregate Purchase Price allocated to the
Shares shall not be less than the higher of (x) $145 million plus the value
of the Economy Companies' statutory capital and surplus as of the Closing
Date before the adjustments in ss.2(a)(vi)(C) and the second sentence of
ss.2(a)(vi) and (y) the amount that would be determined as the Aggregate
Purchase Price under ss.2(a)(vi) if $145,000,000 were substituted for
$315,000,000 in clause (A) thereof.
(b) Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Sullivan & Cromwell at 125
Broad Street, New York, New York 10004 (or such other place as the Parties may
agree in writing) on the soonest date reasonably practicable following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself, but
subject to satisfaction or waiver of all such conditions), as such date may
reasonably be agreed in good faith by the Parties; provided, that if the Parties
cannot so agree, the Closing shall take place on the third Business Day after
which the last to be satisfied or waived of the closing conditions shall be
satisfied or waived) (the "Closing Date").
(c) Deliveries at the Closing. At the Closing, (i) Buyer shall pay to
Seller by wire transfer of immediately available funds to the account(s)
designated by Seller an amount equal to (x) $315,000,000 plus (y) the value of
Economy's statutory capital and surplus as of the date of the most recently
prepared (as of the Closing Date) quarterly consolidated balance sheet of
Economy, as adjusted to reflect any dividend paid by Economy subsequent to the
date of such balance sheet and the adjustments to Economy's reserves
contemplated in ss. 5(c)(iii)-(iv) less (z) an amount equal to the unearned
premium reserves referred to in the Buyer Reinsurance and Facility Agreements,
(ii) all intercompany accounts (including intercompany loans), between the
Economy Companies, on the one hand, and Seller and its other Affiliates, on the
other hand, shall be settled in immediately available funds; (iii) Seller shall
deliver to Buyer the various certificates, instruments, and documents referred
to in ss.7(a) and any payments required to be
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made to Buyer by Seller at Closing pursuant to any Transaction Document and not
covered in subparagraph (i) above, (iv) Buyer shall deliver to Seller the
various certificates, instruments, and documents referred to in ss.7(b) and any
payments required to be made to Seller by Buyer at Closing pursuant to any
Transaction Document, and (v) Seller shall deliver to Buyer stock certificates
representing all of the outstanding common stock of Economy, endorsed in blank
or accompanied by duly executed assignment documents and free and clear of any
mortgage, pledge, lien, encumbrance, charge or security interest or restriction
of any kind (other than restrictions imposed under securities and insurance
Laws); the minute books, including minutes of all meetings and actions in lieu
of meetings of the stockholders, boards of directors and committees of the
boards of directors, and stock transfer books of each of the Economy Companies
and stock certificates in the name of Economy for all outstanding capital stock
of each of the Companies; and, to the extent requested by Buyer, written
resignations effective upon acceptance of each of the directors and officers of
the Economy Companies as listed in ss.4(a) of the Seller Disclosure Schedule.
(d) Post-Closing Adjustment.
(i) The amount paid by Seller at the Closing referred to in ss.2(c)
shall be subject to a post-closing adjustment in an amount determined as
set forth in this ss.2(d).
(ii) As soon as reasonably practicable, but in no event later than 75
days following the Closing Date, Seller shall prepare and deliver to Buyer
the consolidated balance sheet of Economy as of the Closing Date,
accompanied by a certification of Seller's chief accounting officer stating
that such balance sheet presents fairly in all material respects the
consolidated financial condition of Economy at the Closing in conformity
with SAP (such closing balance sheet and certification collectively, the
"Closing Balance Sheet"). The Closing Balance Sheet shall be prepared on a
basis consistent in all material respects with the methods, principles,
practices and policies employed in the preparation and presentation of
Economy's consolidated balance sheet as of March 31, 1999 ("Economy's
Balance Sheet"), except that ULAE reserves as shown on the Closing Balance
Sheet shall be equal to 6.0% of the aggregate statutory loss reserves and
allocated loss adjustment expense reserves.
(iii) During the preparation of the Closing Balance Sheet and the
period of any review or dispute within the contemplation of this ss.2(d),
each Party shall (A) provide the other Party and its authorized
representatives with full access at all reasonable times, and in a manner
so as not to interfere with the normal business operations of the Parties
and their Affiliates, to all relevant books, records, work papers,
information and employees of such Persons, and (B) cooperate fully with the
other Party and its authorized representatives, in each case (A) and (B),
as necessary or useful for the preparation, calculation and review of the
Closing Balance Sheet or for the resolution of any dispute between the
Parties relating thereto.
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(iv) After receipt of the Closing Balance Sheet, Buyer shall have 60
days to review it together with the work papers used in preparation
thereof. Unless Buyer delivers written notice to Seller on or prior to the
60th day after Buyer's receipt of the Closing Balance Sheet stating that it
has material objections thereto, Buyer shall be deemed to have accepted and
agreed to the Closing Balance sheet. Buyer shall not object to any method,
principle, practice or policy employed in the preparation of the Closing
Balance Sheet if such method, principle, practice or policy is consistent
in all material respects with that employed in the preparation and
presentation of Economy's Balance Sheet. If Buyer so notifies Seller of its
material objections to the Closing Balance Sheet, the Parties shall in good
faith attempt to resolve, within 30 days (or such longer period as the
Parties may agree) following such notice (the "Resolution Period") their
differences with respect to such material objections and any resolution by
them as to any disputed amounts shall be final, binding and conclusive.
(v) Any amount remaining in dispute at the conclusion of the Resolution
Period ("Unresolved Changes") shall be submitted to arbitration. One
arbiter (each arbiter, an "Arbiter") shall be chosen by the Seller, the
other by the Buyer, and an umpire (the "Umpire") shall be chosen by the two
Arbiters before they enter upon arbitration, all of whom shall be active or
retired disinterested accounting officers of insurance or reinsurance
companies or Lloyd's of London Underwriters. In the event that either Party
should fail to choose an Arbiter within 15 days following a written request
by the other Party to do so, the requesting Party may choose two Arbiters
who shall in turn choose an Umpire before entering upon arbitration. If the
two Arbiters fail to agree upon the selection of an Umpire within 15 days
following their appointment, the Umpire shall be chosen by the American
Arbitration Association.
(vi) Each Party shall present its case to the Arbiters within 60 days
following the date of appointment of the Umpire, unless the parties
mutually agree to an extension of time. The decision of the Arbiters shall
be final and binding on both Parties; but failing to agree, they shall call
in the Umpire and the decision of the majority shall be final and binding
upon both Parties. Judgment upon the final decision of the Arbiters may be
entered in any court of competent jurisdiction.
(vii) Each Party shall bear the expense of its own Arbiter, and shall
jointly and equally bear with the other the expense of the Umpire and of
the arbitration. In the event that the two Arbiters are chosen by one
Party, as above provided, the expense of the Arbiters, the Umpire and the
arbitration shall be equally divided between the two Parties.
(viii) Any arbitration proceedings shall take place at a location
mutually agreed upon by the Parties, or, if they cannot agree, in the City
of New York but notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the laws of the State of
New York without giving effect to any choice or conflict of laws provision
or rule (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of New York.
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(ix) Arbitration shall not be a condition precedent to any right of
action hereunder.
(x) Once the Closing Balance Sheet has been finalized in accordance
with the above process, the amounts in ss.2(a)(vi)(B) and ss.2(a)(vi)(C)
shall be computed based on the amounts in the Closing Balance Sheet. In the
event the aggregate of such amounts is greater than the amount paid by
Buyer to Seller at the Closing in respect of the adjusted statutory capital
and surplus of Economy, the Buyer shall promptly pay by wire transfer to
the account of the Seller the difference plus interest on such amount at
the Applicable Rate from the Closing Date to the date of such payment. In
the event the aggregate of such amounts is lower than the amount paid by
Buyer to Seller at the Closing in respect of the adjusted statutory capital
and surplus of Economy, the Seller shall promptly pay by wire transfer to
the account of the Buyer the difference plus interest on such amount at the
Applicable Rate from the Closing Date to the date of such payment.
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE PARTIES
(a) Representations and Warranties of Seller. Seller represents and
warrants to Buyer that the statements contained in this ss.3(a) and in the
Disclosure Schedule delivered by Seller to Buyer on the date hereof, attached
hereto and incorporated herein by reference (the "Seller Disclosure Schedule"),
are true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date (other than with respect to those exceptions
disclosed in the Seller Disclosure Schedule).
(i) Corporate Organization. Seller is an insurance corporation duly
organized, validly existing and in good standing under the laws of the
State of Minnesota, and is in good standing in all jurisdictions in which
its failure to qualify or be in good standing could adversely affect the
consummation or the validity of the transactions provided for in this
Agreement.
(ii) Authorization of Transaction. Seller has full corporate power and
authority and has taken all corporate action necessary to execute and
deliver each of the Transaction Documents to which it is a party and to
perform its obligations thereunder. This Agreement has been, and each of
the other Transaction Documents to which Seller is a party will be, duly
executed and delivered by Seller and constitutes or will constitute, as the
case may be, the valid and legally binding obligation of Seller,
enforceable against Seller in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights and to general equity principles, including the exercise of judicial
discretion in connection therewith.
(iii) Noncontravention. Assuming compliance with the requirements
referred to in ss.3(a)(vi), neither the execution and the delivery by
Seller of the Transaction Documents to which Seller is a party, nor the
consummation by Seller of the transactions
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contemplated thereby, will (A) contravene, conflict with, or constitute or
result in, a breach or violation of, any statute, regulation, rule, binding
interpretation, injunction, judgment, order, decree, ruling, charge,
arbitration award or ruling or other binding restriction of any Government
Entity ("Laws") to which Seller is subject, the effect of which would,
individually or in the aggregate, have a Material Adverse Effect on the
SPPI Business taken as a whole, or a breach or violation of any provision
of its charter or bylaws or (B) violate, conflict with, result in a breach
of, constitute (or with notice or upon the expiration of applicable grace
or cure periods or both constitute) a default under, result in the
acceleration of, create in any party the right to accelerate, terminate,
modify, cancel or require any notice under any agreement, contract, lease,
license or instrument to which Seller is a party or by which it is bound or
to which any of its material properties or assets is subject, or create any
Liens on any properties or assets owned by Seller, the effect of which
would, individually or in the aggregate, have a Material Adverse Effect on
the SPPI Business taken as a whole.
(iv) Brokers' Fees. Neither Seller nor any party acting on its behalf
has paid or has any liability or obligation, contingent or otherwise, to
pay any fees or commissions to any broker, finder, or agent, with respect
to the transactions contemplated by the Transaction Documents for which
Buyer or any of the Economy Companies could become liable or obligated.
(v) Economy Shares. Seller is the sole holder of record and beneficial
owner of 500,000 shares of common stock of Economy free and clear of any
mortgage, pledge, lien, encumbrance, charge or security interest or
restriction of any kind (other than restrictions imposed under securities
and insurance Laws), which constitute all of the issued and outstanding
shares of capital stock of Economy. Seller is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
the sale, transfer, or other disposition of any common stock or other
securities of any of the Economy Companies (other than this Agreement).
Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any common stock of any of the
Economy Companies.
(vi) Consents. No consent, approval, authorization, order,
registration, expiration of any applicable waiting periods, filing, notice
or qualification of or with any Government Entity is required to be made or
obtained by Seller in connection with the execution and delivery of the
Transaction Documents or the performance by the Parties of their
obligations thereunder or in order to consummate the transactions
contemplated by the Transaction Documents other than (A) the filing of
pre-merger notification and report forms under the Hart-Scott-Rodino Act
with respect to the Agreement, (B) the filings and/or notices required
under the insurance laws of the states identified in ss.3(a)(vi) of the
Seller Disclosure Schedule and (C) such other consents, approvals,
authorizations, orders, registrations, expiration of any applicable waiting
periods, filings, notices and qualifications the failure to make or obtain
which would not, individually or in aggregate, interfere in any material
respect with Seller's ability to effect the Closing, perform its
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obligations under the Transaction Documents to which Seller is a party, or
have a Material Adverse Effect on any of the Economy Companies (limited to
clause (B)) or the SPPI Business taken as a whole.
(vii) Year 2000 Matters. Seller has developed and is actively executing
a plan and implementation strategy ("Seller Y2K Plan") designed to address
the inability of computer programs to recognize the year 2000 so that,
prior to, during and after the year 2000, Seller will continue to provide
to Buyer the services required under this Agreement and the other
Transaction Documents to which Seller is a party without any material
disruption that is due to the year 2000; provided, however, that Seller
makes and has made no representation or warranty to Buyer as to the state
of readiness, with respect to the year 2000 issue, of its vendors and its
independent agents and brokers.
(b) Representations and Warranties of Buyer. Buyer represents and
warrants to Seller that the statements contained in this ss.3(b) and in the
Disclosure Schedule delivered by Buyer to Seller on the date hereof, attached
hereto and incorporated herein by reference (the "Buyer Disclosure Schedule")
are true and correct as of the date of this Agreement and will be true and
correct as of the Closing Date (other than with respect to those exceptions
disclosed in the Buyer Disclosure Schedule).
(i) Corporate Organization. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of Rhode Island, and
is in good standing in all jurisdictions in which its failure to qualify or
be in good standing could adversely affect the consummation or the validity
of the transactions provided for in this Agreement or the other Transaction
Documents.
(ii) Authorization of Transaction. Buyer has full power and authority
and has taken all corporate action necessary to execute and deliver each of
the Transaction Documents to which Buyer is a party and to perform its
obligations thereunder. This Agreement has been, and each of the other
Transaction Documents to which Buyer is a party will be, duly executed and
delivered by Buyer and constitutes or will constitute, as the case may be,
the valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles, including the exercise of judicial discretion in
connection therewith.
(iii) Noncontravention. Assuming compliance with the requirements
referred to in ss.3(b)(vi), neither the execution and the delivery of the
Transaction Documents to which Buyer is a party, nor the consummation of
the transactions contemplated thereby, will (A) contravene, conflict with,
or constitute or result in, a breach or violation of, any Laws to which
Buyer is subject, the effect of which could adversely affect the
consummation or the validity of the transactions provided for in this
Agreement or the other Transaction Documents to which Buyer is a party, or
a breach or violation of any
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provision of its charter or bylaws or (B) violate, conflict with, result in
a breach of, constitute (or with notice or upon the expiration of
applicable grace or cure periods or both constitute) a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, cancel or require any notice under any agreement,
contract, lease, license or instrument to which Buyer is a party or by
which it is bound or to which any of its properties or assets is subject,
or create any Liens on any material properties or assets owned by Buyer,
the effect of which could adversely affect the consummation or the validity
of the transactions provided for in this Agreement or the other Transaction
Documents.
(iv) Brokers' Fees. Neither Buyer nor any party acting on its behalf
has paid or has any liability or obligation, contingent or otherwise, to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by the Transaction Documents for which Seller
or its Affiliates could become liable or obligated.
(v) Investment. Buyer is acquiring the Shares for its own account and
not with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act. Buyer will not resell, transfer,
assign or distribute the Shares, except in compliance with the registration
requirements of the Securities Act or pursuant to an available exemption
therefrom.
(vi) Consents. No consent, approval, authorization, order,
registration, expiration of any applicable waiting periods, filing, notice
or qualification of or with any Government Entity is required to be made or
obtained by Buyer in connection with the execution and delivery of the
Transaction Documents or the performance by the Parties of their
obligations thereunder or in order to consummate the transactions
contemplated by the Transaction Documents other than (A) the filing of
pre-merger notification and report forms under the Hart-Scott-Rodino Act
with respect to the Agreement, (B) the filings and/or notices required
under the insurance laws of the states identified in the Buyer Disclosure
Schedule and (C) such other consents, approvals, authorizations, orders,
registrations, expirations of any applicable waiting periods, filings,
notices and qualifications the failure to make or obtain which would not,
individually or in aggregate, interfere in any material respect with
Buyer's ability to effect the Closing or otherwise perform its obligations
under the Transaction Documents to which Buyer is a party.
(vii) Sufficient Funds. Buyer will have at the time of Closing cash
available in an amount sufficient to pay to Seller the amounts set forth in
ss.2(a).
(viii) Year 2000 Matters. Buyer has developed and is actively executing
a plan and implementation strategy ("Buyer Y2K Plan") designed to address
the inability of computer programs to recognize year 2000 so that, prior
to, during and after the year 2000, Buyer will continue to provide to
Seller and its Affiliates the services required under this Agreement and
the other Transaction Documents to which Buyer is a party
-16-
without any material disruption that is due to the year 2000; provided,
however, that Buyer makes and has made no representation or warranty to
Seller as to the state of readiness, with respect to the year 2000 issue,
of its vendors and its independent agents and brokers.
(c) Memorandum, Disclaimer of Projections. Buyer acknowledges that neither
Seller nor any Affiliate or representative or advisor of Seller makes or has
made any representation or warranty to Buyer except as specifically made in this
Agreement. In particular, no such person makes or has made any representation or
warranty to Buyer with respect to (i) any information set forth in the
Confidential Memorandum, dated May 1999, distributed by Goldman, Sachs & Co. in
connection with the proposed sale of the SPPI Business or (ii) any financial
projection or forecast relating to the SPPI Business. With respect to any such
projection or forecast delivered by or on behalf of Seller to Buyer, Buyer
acknowledges that (A) there are uncertainties inherent in attempting to make
such projections and forecasts, (B) it is familiar with such uncertainties, (C)
it is taking full responsibility for making its own evaluation of the adequacy
and accuracy of all such projections and forecasts so furnished to it and (D) it
shall have no claim against any person with respect thereto other than a claim
for fraud or bad faith.
Buyer has requested Seller to comment upon the following material reflected
on the Data Room Materials Log:
Data # Document Responsible Officer
------ -------- -------------------
I.C.1 Calendar Year Profitability by Line by Martha Winslow
State including Loss and Expense Ratios
I.D.4 Detailed Premium Information - 1998 Martha Winslow
DWP by Product and 1998 Retention
Ratio by Product
I.D.7 Accident Year Results Martha Winslow
I.D.9 CAS Monthly and Quarterly Reports Gary Homer
I.D.10(i) Senior Management Briefing Reports Steve Klingel
3/31/99
I.D.10(ii) Senior Management Briefing Reports Steve Klingel
12/31/98
Exhibit __ Information Regarding Employee John Clifford
Compensation
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In the letter dated May 27, 1999 from Goldman, Sachs & Co. to the Buyer it
was stated that Seller had endeavored to include in the Evaluation Material (as
defined therein) information known to it which it believed relevant for the
purpose of the Buyer's investigation.
Subject to the statements made in the first and third paragraphs of this
subsection (c), Seller represents and warrants that the responsible officer
referred to in the second paragraph of this subsection (c) has no actual
knowledge or reason to know that the information set forth in each document,
taken as a whole, for which such officer is responsible, is not accurate in all
material respects in light of the purpose for which such information in such
document is presented.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE SPPI AFFILIATES
Seller represents and warrants to Buyer that the statements contained in
this ss.4 and in the Seller Disclosure Schedule are true and correct as of the
date of this Agreement and will be true and correct as of the Closing Date or
the dates specified in such statements (other than with respect to those
exceptions disclosed in the Seller Disclosure Schedule).
(a) Organization, Qualification, Corporate Power and Authorization. (i)
Each of the Economy Companies is an insurance corporation duly organized,
validly existing, and in good standing under the laws of the State of Illinois.
Each of the Economy Companies is duly qualified or licensed to conduct its
business as presently conducted and is in good standing under the laws of each
jurisdiction in which either the ownership or the use of the properties owned or
used by it, or the nature of the activities conducted by it, requires such
licensing, qualification or good standing, except for such failures to be so
qualified, licensed or in good standing as would not, individually or in the
aggregate, reasonably be expected to (A) have a Material Adverse Effect on the
Economy Companies or the SPPI Business taken as a whole or (B) individually, or
in the aggregate, materially interfere with the ability of the Parties to
consummate the transactions contemplated by this Agreement or the other
Transaction Documents. Each of the Economy Companies has full corporate power
and authority to carry on the businesses in which it is presently engaged and to
own and use the properties owned and used by it. ss.4(a) of the Seller
Disclosure Schedule lists the directors and officers of each of the Economy
Companies. Seller has made available or delivered to Buyer a true and correct
copy of each of the Economy Companies' certificate of incorporation and by-laws,
each as amended to date, and such certificate of incorporation and by-laws are
in full force and effect. The minute books of the Economy Companies accurately
reflect all actions taken at all meetings and consents in lieu of meetings of
the stockholder(s) of the Economy Companies since January 1, 1994, and all
actions taken at all meetings and consents in lieu of meetings of their
respective boards of directors and all committees thereof since January 1, 1994.
(ii) Each SPPI Affiliate (other than Seller) has full corporate power and
authority and has taken all corporate action necessary to execute and deliver
each of the Transaction Documents to which it is a party and to perform its
obligations thereunder. Each of the Transaction Documents to which any of the
SPPI Affiliates (other than Seller) is a party will be
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duly executed and delivered by such SPPI Affiliate and constitutes or will
constitute, as the case may be, the valid and legally binding obligation of such
SPPI Affiliate, enforceable against such SPPI Affiliate in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, including the exercise of
judicial discretion in connection therewith.
(b) Noncontravention.
(i) Assuming compliance with the requirements referred to in
ss.4(b)(ii), neither the execution and the delivery of the Transaction
Documents to which an SPPI Affiliate (other than Seller) is a party nor the
consummation of the transactions contemplated thereby will:
(A) contravene, conflict with, or constitute or result in a breach
or violation of any provision of the charter or by-laws of such SPPI
Affiliate;
(B) contravene, conflict with, or constitute or result in a breach
or violation of any Laws to which such SPPI Affiliate is subject;
(C) violate, conflict with, result in a breach of, constitute (or
with notice or upon the expiration of applicable grace or cure periods
or both constitute) a default under, result in the acceleration of,
create in any Person the right to accelerate, terminate, modify, or
cancel, or require any notice under any agreement, contract, lease,
license or instrument to which such SPPI Affiliate is a party or by
which it is bound or under which it receives material benefits or to
which any of its assets is subject (or result in the imposition of any
Lien upon any of its assets); or
(D) contravene, conflict with, or constitute or result in a breach
or violation of, or a default under, any provision of, or give any
Government Entity the right to revoke, withdraw, suspend, cancel,
terminate or modify, any approval, franchise, certificate of authority,
order, consent, judgment, decree, license, permit, waiver or other
authorization issued, granted, given or otherwise made available by or
under the authority of such Government Entity or pursuant to any Law,
that is held by such SPPI Affiliate;
except in the case of clauses (B), (C) and (D) where the contraventions,
violations, conflicts, breaches, defaults, accelerations, terminations,
modifications, cancellations, failures to give notice, rights, or Liens (x) are
not material, individually or in the aggregate to the Economy Companies (limited
to clauses (B) and (D)) or the SPPI Business taken as a whole, and (y) do not,
individually or in the aggregate, materially interfere with the ability of the
Parties to consummate the transactions contemplated by this Agreement or the
other Transaction Documents.
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(ii) Consents and Approvals. None of the SPPI Affiliates (other than
Seller) is required to give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any Government Entity in
connection with the execution and delivery of the Transaction Documents to
which it is a party or the performance by the parties of their obligations
thereunder or in order for the parties thereto to consummate the
transactions contemplated by such Transaction Documents, except (A) any
filings and/or notices which may be required under the insurance laws of
the states identified in the Seller Disclosure Schedule and (B) such other
consents, approvals, authorizations, orders, registrations, expirations of
any applicable waiting periods, filings, notices and qualifications the
failure to make or obtain which would not, individually or in the
aggregate, adversely affect the ability of the SPPI Affiliates (other than
Seller) to conduct their respective businesses in all material respects as
they are presently being conducted or interfere in any material respect
with the SPPI Affiliates' ability to effect the Closing or otherwise
perform their obligations under the Transaction Documents to which they are
a party.
(c) Assets.
(i) Economy Companies Assets. As of the Closing Date, each of the
Economy Companies will have good and marketable title (free and clear of
any Lien) to, or a valid leasehold interest in, or a valid license to use,
the material properties and assets, tangible and intangible, used by them
in their businesses.
(ii) SPPI Assets.
(A) Use of SPPI Assets. As of the Closing Date, the assets of the
Economy Companies and the SPPI Assets will constitute all material
assets and properties principally utilized by the SPPI Affiliates to
conduct, consistent with past practice, the business conducted by the
SPPI Affiliates prior to the Closing.
(B) Title to SPPI Assets. As of the Closing Date, each of the SPPI
Entities that owns SPPI Assets will have good and marketable title to
such SPPI Assets, free and clear of any Lien, and except for the
ownership of policy expirations and business records by Seller's and
the SPPI Entities' agents. The instruments of transfer to be executed
and delivered by Seller on the Closing Date pursuant to ss.2(c) and
ss.7(a)(vi)(A) hereof, will be valid and binding obligations of Seller
and will be sufficient to transfer to the Buyer all right, title and
interest of such SPPI Entities in and to the relevant SPPI Assets free
and clear of any Lien.
(C) Policies of Insurance. The SPPI Policies were sold through
licensed agents of Seller or its Affiliates in compliance in all
material respects with all applicable laws, rules or orders of any
appropriate Government Entity. Seller has no reason to believe that the
SPPI Policies will be terminated before their stated expiration dates,
except for the reasons and in the percentages that
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Seller has historically experienced since January 1, 1998, or that the
SPPI Policies will not be renewed except in the ordinary course upon
their expiration except for the reasons and in the percentages that
Seller has historically experienced since January 1, 1998. Seller does
not represent or warrant that all or any percentage of policies will
renew, it being understood by the Parties that Seller's or its
Affiliates' agents have ownership rights in the policy expirations and
are entitled to renew the SPPI Policies with an insurer other than
Buyer.
(d) Capitalization; Subsidiaries. The authorized capital stock of Economy
consists solely of 1,000,000 shares of common stock, $5.00 par value per share,
of which 500,000 shares are issued and outstanding. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights or other agreements, contracts or commitments or other
rights to purchase any of the authorized but unissued capital stock or other
securities of Economy. Economy is not a party to any agreement which would
require Economy to purchase any of its capital stock or other securities under
any circumstances. ss.4(d) of the Seller Disclosure Schedule sets forth for each
of the Companies: (i) the number of authorized shares of each class of its
capital stock, (ii) the number of issued and outstanding shares of each class of
its capital stock, and (iii) the number of shares of its capital stock held in
treasury. All of the issued and outstanding shares of capital stock of the
Economy Companies have been duly authorized and are validly issued, fully paid,
and nonassessable. Economy is the sole holder of record and beneficial owner of
all of the issued and outstanding shares of capital stock of each of the
Companies free and clear of any mortgage, pledge, lien, encumbrance, charge,
security interest or any other restriction (other than restrictions imposed
under securities and insurance Laws). There are no outstanding or authorized
options, warrants, purchase rights, subscription rights, conversion rights,
exchange rights, or other agreements, contracts or commitments that could
require any of the Economy Companies to issue, sell, transfer, or otherwise
dispose of or cause to become outstanding any capital stock or other securities
of any of the Economy Companies or that could require any of the Economy
Companies to issue, sell, transfer or otherwise dispose of or cause to become
outstanding any of their own capital stock or other securities. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of any capital stock of any of the Economy Companies. None of the
Economy Companies have outstanding any bonds, debentures, notes or other
obligations the holders of which have the right to vote (or convertible into or
exercisable for securities having the right to vote) with its stockholders on
any matter. All outstanding securities of each of the Economy Companies were
issued in transactions exempt from the registration requirements of federal and
state securities laws. None of the Economy Companies will hold any securities or
ownership interests in any other Person as of the Closing, except capital stock
held in portfolio investments and, in the case of Economy, the capital stock of
the Companies.
(e) Financial Information and Statutory Reports.
(i) Set forth in ss.4(e)(i) of the Seller Disclosure Schedule are
consolidated unaudited (i) balance sheets of Economy as of December 31,
1997 and 1998 and March 31, 1999, and (ii) income statements of Economy for
the years ended
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December 31, 1997 and 1998 and the quarter ended March 31, 1999, each of
which has been prepared in accordance with GAAP (the "GAAP Statements").
(ii) Seller has previously furnished to Buyer the following statutory
statements, in each case together with the exhibits, schedules and notes
thereto and any affirmations and certifications filed therewith
(collectively, the "Statutory Statements"): (A) the annual statement of
each of the Economy Companies as at December 31, 1998, in each case as
filed with the insurance regulatory authority of its respective
jurisdiction of domicile, (B) the quarterly statements of each of the
Economy Companies for the quarterly period ended March 31, 1999, in each
case as filed with the insurance regulatory authority of its respective
jurisdiction of domicile, and (C) audited consolidated statements of
Economy as at December 31, 1998, as filed with the insurance regulatory
authority of its respective jurisdiction of domicile.
(iii) The GAAP Statements and Statutory Statements, respectively,
present fairly the GAAP and statutory financial condition and results of
operations of each of the Economy Companies for the periods therein
specified, were prepared in conformity with GAAP and statutory accounting
principles prescribed or permitted by the applicable insurance regulatory
authority ("SAP") applied on a consistent basis during the periods
presented, as the case may be, except as expressly set forth within the
subject financial statements. No material deficiency has been asserted by
any Government Entity with respect to any of the GAAP Statements or
Statutory Statements in writing (or to the Knowledge of the Specified
Employees, by other means).
(iv) Set forth in ss.4(e)(iv) of the Seller Disclosure Schedule is a
description of all material liabilities of the Economy Companies as of the
date hereof that are not reflected on the face of Economy's Balance Sheet
(as set forth in ss.4(e)(i) of the Seller Disclosure Schedule), together
with a description of all material liabilities of Economy incurred since
that date, other than policy liabilities incurred in the Ordinary Course of
Business.
(f) Events Subsequent to March 31, 1999. Other than the transactions
contemplated by or referred to in the Transaction Documents or as set forth in
ss.4(f) of the Seller Disclosure Schedule, since March 31, 1999 (x) none of the
SPPI Affiliates has engaged in any material practice, taken any material action
or actions or entered into any material transaction or transactions outside of
the Ordinary Course of Business, (y) Seller has not with respect to the business
of the SPPI Affiliates engaged in any material practice, taken any material
action or actions or entered into any material transaction outside the Ordinary
Course of Business, and (z) there has not been any:
(i) (A) material adverse change in the financial condition or business
of the SPPI Business taken as a whole, or (B) to the Knowledge of the
Specified Employees, event or development on or prior to the date of this
Agreement that is reasonably likely to have a Material Adverse Effect on
the SPPI Business taken as a whole (other than in the
-22-
case of (A) or (B), material adverse changes or events or developments
arising from or associated with adverse developments in the
property/casualty personal lines insurance business, or the announcement of
the transactions contemplated by this Agreement or the identity or business
strategy of Buyer);
(ii) (A) change in the authorized or issued capital stock of any of the
Economy Companies; (B) grant of any stock option, warrant, or other right
to purchase shares of capital stock of any of the Economy Companies; (C)
issuance of any security convertible into the capital stock of any of the
Economy Companies; (D) grant of any registration rights in respect of the
capital stock of any of the Economy Companies; (E) reclassification,
combination, split, subdivision, purchase, redemption, retirement,
issuance, sale, or any other acquisition or disposition, directly or
indirectly, by any of the Economy Companies of any shares of the capital
stock of any of the Economy Companies; (F) any amendment of any material
term of any outstanding security of any of the Economy Companies; (G)
declaration, setting aside or payment of any dividend (whether in cash,
securities or other property) or other distribution or payment in respect
of the shares of the capital stock of any of the Economy Companies, except
in respect of satisfaction of intercompany payables and receivables and as
set forth in ss.5(c); or (H) sale or pledge of any stock or other equity
interests owned by any of the Economy Companies;
(iii) (A) amendment or other change in the certificate of incorporation
or bylaws of any of the Economy Companies; (B) merger or consolidation by
any of the Economy Companies with or into any other Person; (C) subdivision
or reclassification of any shares of the capital stock of any of the
Economy Companies; or (D) change or agreement to change in any manner the
rights of the outstanding capital stock of any of the Economy Companies;
(iv) (A) acquisition (including by way of bulk reinsurance, merger,
consolidation or acquisition of stock or assets) by any of the Economy
Companies of any Person or any division thereof or material portion of the
assets thereof; (B) liquidation, dissolution or winding up of, or
disposition of all or substantially all of the assets (including by way of
bulk reinsurance, whether on an indemnity or assumption basis) of any of
the Economy Companies; or (C) organization of any new subsidiary of any of
the Economy Companies;
(v) material change in the policies, practices or principles of any of
the Economy Companies (or the other SPPI Affiliates with respect to the
SPPI Business) with respect to accounting, reserving, hedging, investing or
otherwise engaging in derivatives transactions, underwriting or claims
administration (other than any change required by applicable Law);
(vi) agreement entered into or amended by Seller or any of the Economy
Companies with any labor union or association representing any employee, or
any wage
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or salary increase or bonus (other than in the Ordinary Course of Business)
with respect to any officers, directors or employees of any of the Economy
Companies or, except as contemplated by this Agreement, any SPPI
Transferred Employees, or any adoption or amendment of any stock option,
executive compensation plan, severance pay, 401(k) plan, retirement plan,
employee stock ownership plan or any other employee benefit plan of the
Seller, any Economy Company or any of their Affiliates, other than an
amendment required by Law, with respect to any officers, directors or
employees of any of the Economy Companies or any SPPI Transferred
Employees, or any plan or commitment to do any of the foregoing;
(vii) change, other than in the Ordinary Course of Business, in the
terms for, or policies with respect to, the payment of commissions to any
agent of any of the SPPI Affiliates with respect to the SPPI Business;
(viii) loan made to any SPPI Transferred Employee or agent (other than
agent advances made in the Ordinary Course of Business) of any of the SPPI
Affiliates;
(ix) other contract, agreement or transaction entered into by any of
the Economy Companies that both (A) materially increases the liabilities of
such company and (B) by reason of its size or otherwise, is not in the
Ordinary Course of Business; or
(x) agreement (whether written or oral and express or implied) by any
of the SPPI Affiliates with respect to the SPPI Business to do any of the
foregoing (ii) through (ix).
(g) Legal Compliance.
(i) Each of the SPPI Affiliates is in compliance in all material
respects with all applicable Laws.
(ii) To the Knowledge of the Specified Employees, as of the date hereof
none of the SPPI Affiliates has received any written notice or other
written communication from any Government Entity or arbitrator regarding
any violation by any of the SPPI Affiliates of, or a failure on the part of
any of the SPPI Affiliates to comply in any material respect with, any
Laws.
(h) Tax Matters. Except as set forth in ss.4(h) of the Seller Disclosure
Schedule, (i) Seller or an Affiliate of Seller has filed or caused to be filed,
or will file or cause to be filed on or prior to the Closing Date, all material
Tax Returns (collectively the "Seller Returns"), which are required to be filed
by Seller or such Affiliate with respect to any Affiliated Group that includes
or included the Economy Companies on or prior to the Closing Date; (ii) each of
the Economy Companies has filed or caused to be filed, or will file or cause to
be filed on or prior to the Closing Date, all material Tax Returns (collectively
the "Economy Returns"), which are required to be filed by each of the Economy
Companies on or prior to the Closing Date; (iii) the Seller
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Returns and the Economy Returns are true, complete and accurate in all material
respects; (iv) all material Taxes due and payable by or with respect to any of
the Economy Companies have been, or prior to the Closing Date will be, timely
paid, or to the extent that Taxes relating to any of the Economy Companies are
not due and payable prior to the Closing Date, will be adequately provided for
in Economy's balance sheet as of March 31, 1999 in accordance with the tax
sharing agreement among Seller and the Economy Companies; (v) there is no claim,
audit, action, suit, proceeding or investigation now pending or, to the
Knowledge of the Specified Employees, threatened against or with respect to any
of the Economy Companies with respect to any Tax for which any of the Economy
Companies could be liable; (vi) none of the Economy Companies has granted any
extension or waiver of the statute of limitations period applicable to any
Economy Return, which period (after giving effect to such extension or waiver)
has not yet expired; (vii) none of the Economy Companies is currently under any
obligation to pay any amounts as a result of being party to any tax sharing
agreement other than the tax sharing agreement among Seller and any of the
Economy Companies; (viii) to the Knowledge of the Specified Employees, there are
no Liens for Taxes upon the assets of any of the Economy Companies; (ix) the
amount of unamortized intangible assets of the Economy Companies arising from
the 1993 purchase of the Economy Companies which are available for future
amortization pursuant to section 197 of the Code will not be less than $55.0
million as of the Closing Date (assuming that the Closing Date occurs prior to
December 31, 1999), and the annual amortization of such intangibles for taxable
years beginning after December 31, 1999 will be not more than $7.0 million per
year; and (x) the Economy Companies (A) have complied in all material respects
with the provisions of the Code relating to the withholding and payment of
Taxes, including, without limitation, the withholding and reporting requirements
under Code sections 1441 through 1464, 3401 through 3406, and 6041 through 6049,
and any similar provisions under any other laws; (B) have, within the time and
in the manner prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required; and (C) have complied
in all material respects with the requirements for classifying persons who
provide services to the Economy Companies as employees for purposes of such tax
withholding requirements. The exclusive remedy for breaches of any
representations and warranties contained in this ss.4(h) shall be pursuant to
the indemnification provisions of ss.6(e) hereof.
(i) Certain Employee Matters. ss.4(i)(i) of the Seller Disclosure Schedule
contains a true and complete list of each employee benefit plan within the
meaning of ss.3(3) of ERISA and all other employee benefits plans, contracts,
agreements, practices, policies or arrangements, whether or not subject to
ERISA, maintained or contributed to for the Business Employees (the "Plans").
Seller has made available or delivered to Buyer an accurate and complete copy of
each such Plan and any amendments thereto, and to the extent applicable, of any
related trust agreement or other funding instrument, the most recent
determination letter if applicable, any summary plan description and summary of
material modification, and for the plan years most recently completed prior to
the date hereof, the Form 5500 and related schedules, audited financial
statements and actuarial valuation reports. Each Plan has been maintained in all
material respects in accordance with its terms and in compliance with the
applicable requirements of the Code, ERISA and other applicable law. Each Plan
which is an "employee pension benefit plan" within the meaning of ss.3(2) of
ERISA ("Pension Plan") and which is
-25-
intended to be qualified under ss.401(a) of the Code has received a favorable
determination letter from the Internal Revenue Service and none of Seller or any
of the Economy Companies is aware of any circumstances likely to result in
revocation of any such favorable determination letter. Neither Seller, the SPPI
Entities nor any of the Economy Companies has incurred, nor does any of them
expect to incur, any liability under Subtitle C or D of Title IV of ERISA (other
than for PBGC premiums which have been paid in the ordinary course), or for
failure to meet the requirements of ss.412 of the Code with respect to any
Pension Plan which is covered by Title IV of ERISA or with respect to any
single-employer plan of an ERISA Affiliate. Neither Seller, the SPPI Entities
nor any of the Economy Companies has an obligation to contribute to, nor has any
of them incurred or expect to incur, any withdrawal liability (whether or not
based on the contribution of an ERISA Affiliate) with respect to a multiemployer
plan under Subtitle E of Title IV of ERISA which has not been satisfied in full.
Neither Seller, the SPPI Entities nor any of the Economy Companies has provided,
or is required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to ss.401(a)(29) of the
Code. Within the 12-month period prior to the date hereof, no reportable event
(within the meaning of Section 4043 of ERISA) for which the reporting
requirement has not been waived has been required to be filed with respect to
any Pension Plan which would result in a material liability to any of the
Economy Companies. Except as disclosed in ss.4(i)(ii) of the Seller Disclosure
Schedule, there are no actions, suits or proceedings pending against any of
Seller or any of the Economy Companies brought by or on behalf of any Business
Employee relating to any Plan as of the date of this Agreement. There is no
audit, investigation or proceeding pending or, to the Knowledge of the Specified
Employees, threatened involving any Plan before the Internal Revenue Service,
the United States Department of Labor or any other governmental authority.
Neither Seller, the SPPI Entities nor any of the Economy Companies has engaged
in a transaction with respect to any Plan that, assuming the taxable period of
such transaction expired as of the date hereof, could subject any of the Economy
Companies to a tax or penalty imposed by either ss.4975 of the Code or ss.502(i)
of ERISA in an amount which would be material. Except as disclosed in
ss.4(i)(iii) of the Seller Disclosure Schedule or as set forth in ss.6(d) of
this Agreement, the consummation of the transactions contemplated by this
Agreement will not, either by itself or by reason of an associated event, (i)
give rise to any liability for severance pay, unemployment compensation,
termination pay, relocation expenses, subsidized pension or other retirement
benefits to any Business Employee (or their beneficiaries), or (ii) accelerate
the time of funding, payment or vesting or increase the amount of compensation
or benefits due to any to any Business Employee (or their beneficiaries).
(j) Licenses and Permits. Each of the SPPI Affiliates has such
certificates, permits, licenses, franchises, consents, approvals, orders,
authorizations and clearances from appropriate insurance and other Government
Entities ("Licenses") as are necessary to conduct the SPPI Business in which it
is engaged, such Licenses are valid and in full force and effect and such
Licenses are sufficient for the ownership and conduct of such SPPI Business,
subject (except in the case of state insurance licenses) to such exceptions as
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on the SPPI Business taken as a whole. ss.4(j) of the
Seller Disclosure Schedule lists, and Seller has furnished or made available to
Buyer copies of, all Licenses of the SPPI Affiliates in any state. None of the
SPPI
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Affiliates have received written notice (or, to the Knowledge of the Specified
Employees, any other communication) of any violation in respect of any such
License (other than alleged violations which have been resolved) and no
proceeding is pending (or, to the Knowledge of the Specified Employees,
threatened) to suspend, revoke or limit any such License. Each of the SPPI
Affiliates is in compliance in all material respects with its obligations under
such Licenses. None of the SPPI Affiliates is operating under a voluntary
agreement with the insurance regulatory authorities of any state in which it now
holds a current Certificate of Authority which restricts its authority to do
business authorized on such Certificate of Authority or which could adversely
impact the consummation of the transactions contemplated hereby.
(k) Contracts. ss.4(k) of the Seller Disclosure Schedule lists all of the
following written contracts to which any of the Economy Companies is a party:
(i) contracts the performance of which is expected to involve
consideration in excess of $500,000 (other than (A) insurance, reinsurance
or indemnity policies, fidelity bonds, surety bonds or similar contracts or
undertakings issued or entered into by the Economy Companies, (B)
commission and agency agreements and (C) contracts for the license or use
of Intellectual Property);
(ii) contracts which restrict in any material respect or contain
material limitations on the ability of any of the Economy Companies to
freely conduct business in the United States;
(iii) contracts which contain any provision or restriction limiting in
any material respect the ability of the Economy Companies to sell any
products or services of any Person or obtain any products or services from
any Person;
(iv) contracts under which any of the Economy Companies have borrowed
money or guaranteed borrowings of money, including any not reflected on
Economy's Balance Sheet;
(v) leases or subleases of real property;
(vi) material contracts with Seller or any of its Affiliates (other
than the Economy Companies);
(vii) contracts pursuant to which any Lien is placed or imposed on any
asset of any of the Economy Companies;
(viii) partnership or joint venture agreements;
(ix) any material indemnification agreement or guarantee;
(x) any material contract not terminable upon 90 days written notice;
or
-27-
(xi) material contracts, including without limitation any loan
agreements with employees of any of the Economy Companies or other Business
Employees other than the Plans or any labor union or association
representing employees.
Each such contract is valid and in full force and effect and is enforceable by
the parties thereto, and none of the Economy Companies nor, to the Knowledge of
the Specified Employees, any other party is in breach of or default (including
after notice or upon the expiration of applicable grace or cure periods) under
any such contract, subject to such exceptions as would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on the
SPPI Business taken as a whole. Seller has made available to Buyer a copy of
each contract and instrument listed in ss.4(k) of the Seller Disclosure
Schedule.
(l) Owned Real Property. ss.4(l) of the Seller Disclosure Schedule sets
forth a complete and correct list of all real property owned by each of the
Economy Companies (together with all improvements or fixtures owned by each of
the Economy Companies and located thereon, the "Owned Real Property") and a
complete and correct list of all easements appurtenant to the Owned Real
Property. One of the Economy Companies, as the case may be, has good and
marketable fee simple title to the Owned Real Property free and clear of any
Lien. There are no outstanding options or rights of first refusal to purchase
the Owned Real Property, or any portion thereof or interest therein.
(m) Actions and Proceedings. ss.4(m) of the Seller Disclosure Schedule sets
forth each instance in which any of the SPPI Affiliates or any of the property
or assets of any of the SPPI Affiliates (i) is subject to any outstanding
injunction, judgment, order, award, decree, or ruling as of the date of this
Agreement or (ii) is a party to any action, suit, proceeding, arbitration,
mediation, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or arbitration panel, including without limitation any claims of
bad faith against any of the SPPI Affiliates as well as class actions, employee
or Alabama litigation related to the Economy Companies or SPPI Entities as to
the SPPI Business ("Actions") as of the date of this Agreement. As of the date
of this Agreement, no Actions have been threatened in writing, or to the
Knowledge of the Specified Employees, by other means, against any of the SPPI
Affiliates (or any of the properties of the SPPI Affiliates), other than (i)
Actions which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Economy Companies or the SPPI
Business taken as a whole and (ii) Actions that involve or relate to a claim or
dispute under any insurance, reinsurance or indemnity policy, fidelity bond,
surety bond or similar contract or undertaking issued or entered into by any of
the SPPI Affiliates which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the SPPI Business
taken as a whole.
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(n) Intellectual Property.
(i) ss.4(n) of the Seller Disclosure Schedule identifies the following
intellectual property used by Seller in connection with the SPPI Business
or owned or used by any of the SPPI Affiliates in connection with the SPPI
Business: (A) patents and pending patent applications; (B) trademark,
service mark and trade name registrations and applications therefor; (C)
material unregistered trademarks, service marks and trade names; (D)
copyright registrations and applications therefor; (E) material
unregistered copyrights and computer software (including related codes and
documentation) (other than commercially available computer software and
related documents); and (F) licenses and similar agreements for the use of
any material item of intellectual property (including, without limitation,
patents, unpatented inventions and technology, trademarks, service marks
and trade names, copyrights and copyrightable works, computer software,
know-how and trade secrets to which Seller or any of the SPPI Affiliates is
a party, either as licensee or licensor (other than licenses for the use of
commercially available computer software and related documentation).
(ii) For purposes hereof: "Intellectual Property" shall mean and
include the items of intellectual property described in clauses (A) through
(F) of ss.4(n)(i) hereof, and all U.S. or foreign unpatented inventions and
technology, know-how, trade secrets and other intellectual property rights;
and "SPPI IP" shall mean and include all Intellectual Property owned or
used by Seller in connection with the SPPI Business or owned or used by any
of the SPPI Affiliates in connection with the SPPI Business.
(iii) To the Knowledge of the Specified Employees: (A) the Seller or
the relevant SPPI Affiliate is the sole owner, free and clear of any lien
or encumbrance, of, or has a valid license, without the payment of any
royalty except with respect to off-the-shelf software and otherwise on
commercially reasonable terms, to, all of the SPPI IP, and such SPPI IP
includes all of the Intellectual Property currently used for the conduct of
the SPPI Business as now conducted; (B) the rights of Seller or the
applicable SPPI Affiliate in the SPPI IP are valid and enforceable; (C) no
demand, claim or notice from any Person in respect of the SPPI IP which
challenges or threatens to challenge the validity of, or the rights of
Seller or the applicable SPPI Affiliate in, any such SPPI IP has been made
or received, and none of Seller nor any SPPI Affiliate knows of any valid
basis for any such challenge; (D) neither the Seller nor any SPPI Affiliate
is in violation or infringement of, and has not violated or infringed, any
Intellectual Property of any other Person in connection with the conduct of
the SPPI Business; (E) no claim by any third party contesting the validity,
enforceability, use or ownership of any of such Intellectual Property has
been made or is currently outstanding; (F) none of the SPPI Affiliates is
infringing or misappropriating any Intellectual Property rights of any
third party in connection with the SPPI Business; and (G) no SPPI Affiliate
has granted licenses to third parties with respect to "PAK II" or "Premier
Homeowners Policy".
-29-
(iv) The Seller Y2K Plan is designed to address the inability of any
computer system (including hardware and software) being transferred to
Buyer with the Economy Companies or as part of the SPPI Assets to recognize
the year 2000.
(o) Reinsurance and Coinsurance. ss.4(o)(i) of the Seller Disclosure
Schedule contains a list of all reinsurance or coinsurance treaties or
agreements, including retrocessional agreements but excluding reinsurance or
coinsurance unrelated to the SPPI Business, to which any of the SPPI Affiliates
is a party or under which it has any existing rights, obligations or
liabilities, and ss.4(o)(ii) of the Seller Disclosure Schedule contains a list
of all reinsurance treaties or agreements, including facultative certificates,
between any Economy Company and Seller or any of Seller's Affiliates other than
the Economy Companies (the "St. Paul Reinsurance Agreements"). Assuming no
default by any party other than any of the SPPI Affiliates, all such treaties or
agreements set forth in ss.4(o)(i) and ss.4(o)(ii) of the Seller Disclosure
Schedule are in full force and effect to the respective dates noted thereon;
none of the SPPI Affiliates nor, to the Knowledge of the Specified Employees,
any other party thereto is in default in any material respect as to any
provision thereof; and to the Knowledge of the Specified Employees, no such
agreement contains any provision providing that the other party thereto may
terminate such agreement by reason of the transactions contemplated by this
Agreement.
(p) Agents and Brokers.
(i) Set forth in ss.4(p)(i) to the Seller Disclosure Schedule is a list
of each of the SPPI Affiliates' agents, managing general agencies and
brokers as of March 31, 1999 ("SPPI Agents"), and the written premiums,
contract commissions and total amounts of commissions paid to each such
SPPI Agent during the year ended December 31, 1998 and the principal
contact and address information for each such SPPI Agent. Except as set
forth in ss.4(p) of the Seller Disclosure Schedule, each such SPPI Agent
has binding authority on behalf of the SPPI Affiliates subject to specified
dollar limits. Each of the contracts and other agreements between an SPPI
Affiliate and its respective SPPI Agents with respect to the SPPI Business
is valid, binding and in full force and effect in accordance with its
terms, assuming no default by any such SPPI Agent under any such contract
or agreement and except for such contracts the failure of which to be
valid, binding and in full force and effect would not have a Material
Adverse Effect on the SPPI Business taken as a whole. None of the Economy
Companies is in default in any material respect with respect to any such
contract or other agreement and no such contract or other agreement
contains any provision providing that the other party thereto may terminate
the same by reason of the transactions contemplated by this Agreement or
any other provision which would be altered or otherwise become applicable
by reason of such transactions, in each such case, subject to such
exceptions as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the SPPI Business taken as a
whole. No insurance agent or group of related agents accounted for more
than 2% of the gross premium income of the SPPI Affiliates combined with
respect to the SPPI Business for the year ended December 31, 1998.
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(ii) All SPPI Agents have entered into agency agreements with one or
more of the SPPI Affiliates in the form attached hereto as Exhibit I, and
such SPPI Agents have entered into no other material agreements with any of
the SPPI Affiliates with respect to the SPPI Business.
(q) Actuarial Reports. Seller has delivered or made available to Buyer a
true and complete copy of each regularly prepared annual actuarial report
prepared by Seller's internal actuaries with respect to the Economy Companies
with respect to the year 1998.
(r) IRIS Ratios. Seller has delivered or made available to Buyer true and
complete copies of all analyses, reports and other data submitted by the Economy
Companies to the National Association of Insurance Commissioners relating to
IRIS ratios. ss.4(r) of the Seller Disclosure Schedule sets forth a list of the
Economy Companies' IRIS ratios for the years 1996, 1997 and 1998.
(s) Pools and Facility Arrangements; Service Agreements. ss.4(s)(i) of the
Seller Disclosure Schedule sets forth a list of all pools and facility
arrangements (other than "FAIR plans" or similar government-mandated
arrangements) to which any of the Economy Companies have been a party at any
time from January 1, 1997 to the date of this Agreement. ss.4(s)(ii) of the
Seller Disclosure Schedule sets forth a list of all material agreements
providing for insurance services to which any of the Economy Companies or any of
the SPPI Entities as to the SPPI Business are a party as of the date of this
Agreement.
(t) Bank Accounts. ss.4(t) to the Seller Disclosure Schedule sets forth a
list of the bank names, locations and account numbers of all bank and safe
deposit box accounts of each of the Economy Companies including any custodial
accounts for securities owned by any of the Economy Companies and the names of
all persons authorized to draw thereon or to have access thereto.
(u) Environmental Matters. (A) To the Knowledge of the Specified Employees
as of the date of this Agreement, and (B) subject to such exceptions as would
not reasonably be expected to have a Material Adverse Effect on the SPPI
Business taken as a whole:
(i) the Economy Companies have complied at all times with all
applicable Environmental Laws;
(ii) no real property currently or formerly owned or operated by any of
the Economy Companies has been contaminated with any Hazardous Substances
during or prior to their ownership or operation thereof and requiring
remediation under any applicable Environmental Law;
(iii) the Economy Companies have not received any claim for liability
related to any off-site waste disposal or contamination of any property
owned or operated by a third party;
-31-
(iv) the Economy Companies have not received any claims or notices
alleging responsibility or liability under any Environmental Law;
(v) there are no releases of Hazardous Substances or violations of
Environmental Laws involving the Economy Companies that would reasonably be
expected to result in any claims, liabilities or costs or restrictions on
the ownership, use or transfer of, any property in connection with
Hazardous Substances or any Environmental Law; and
(vi) none of the Economy Companies have participated in the management
or operational affairs of any entity or facility in which such Economy
Company either has an equity investment or holds indicia of ownership
primarily to protect a security interest, that would cause them to be
liable under any 42. U.S.C. sections 9607 and 9601(20) or under any other
Environmental Law for contamination by Hazardous Substances caused by such
entity or facility, or present at any location owned or operated by such
entity or facility.
Notwithstanding the foregoing, the representation and warranty contained in this
ss.4(u) constitutes the sole representation of the Seller with respect to any
Environmental Law, but does not apply to, and does not cover, any claims,
liabilities, costs or expenses relating to any insurance, reinsurance or
indemnity policy, fidelity bond, surety bond or similar contract or undertaking
issued or entered into by any of the SPPI Affiliates or claims by policyholders
thereunder. As used herein, "Environmental Law" means any law, regulation,
order, decree, binding opinion having the force of law, common law or written
agency policy, guidance or requirement having the force of law relating to the
protection of the environment, hazardous or toxic materials or wastes or human
health and safety as it relates to Hazardous Substances. "Hazardous Substance"
means any substance that is listed, classified or regulated pursuant to any
Environmental Law including but not limited to any petroleum products, asbestos,
radon, polychlorinated biphenyls or any mixture or material containing such
substances.
(v) Insurance Business. All policy forms issued by the SPPI Affiliates, and
all amendments, applications, brochures, illustrations and certificates
pertaining thereto have, where required by applicable Law, been approved by all
applicable Government Entities or filed with and not objected to by such
Government Entities within the period provided by applicable Law for objection,
subject to such exceptions as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the SPPI Business
taken as a whole. All such forms comply in all material respects with, and have
been administered in all material respects in accordance with, applicable Law.
Any rates of any of the SPPI Affiliates which are required to be filed with or
approved by any Government Entity have been so filed or approved and the rates
used by any of the SPPI Affiliates conform in all material respects thereto. Any
contract or agreement to which any of the SPPI Affiliates is a party and which
is required to be filed with or approved by any Government Entity has been so
filed or approved.
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(w) Employee Relations. None of the Economy Companies, the Seller nor any
SPPI Entity is a party to or bound by any collective bargaining agreement or any
other agreement with respect to employees engaged in the SPPI Business with any
labor union or association representing employees engaged in the SPPI Business,
and no such agreement or contract is currently being negotiated by any of the
Economy Companies, Seller or other SPPI Entities. ss.4(w) of the Seller
Disclosure Schedule describes the status of all union organizing efforts that,
to the Knowledge of the Specified Employees, are now being conducted in respect
of any of the Economy Companies or other SPPI Entities. To the Knowledge of the
Specified Employees, there is no strike, picket, work stoppage or work slowdown
threatened against any of the Economy Companies. None of the Economy Companies
is involved in or threatened with any labor dispute, grievance, unfair labor
practice charge or litigation relating to labor matters involving any employees
engaged in the SPPI Business. The Economy Companies are in material compliance
with all laws relating to labor and employment including, without limitation,
laws relating to fair employment practices, employment discrimination, wage and
hour, safety and health, labor relations and terms and conditions of employment.
None of the Economy Companies has experienced within the past 12 months a "plant
closing" or "mass layoff" within the meaning of the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. ss.ss.2101 et seq.
(x) Insurance. ss.4(x) of the Seller Disclosure Schedule sets forth a list
of all policies and binders of fire, liability, product liability, workers'
compensation, vehicular and other insurance covering any of the Economy
Companies as of the date of this Agreement, other than (a) reinsurance and
coinsurance treaties, and agreements listed on ss.4(k) of the Seller Disclosure
Schedule, and (b) policies in respect of which any of the Economy Companies is
an insured mortgagee or lessor. The policies and binders listed in ss.4(x) of
the Seller Disclosure Schedule are valid and enforceable in accordance with
their terms, are in full force and effect (assuming no default by any such
insurer).
(y) Books and Records. The Books and Records relating to the SPPI Business
are true, complete and correct in all material respects. Seller has provided to
Buyer or made available to Buyer on or prior to the date hereof copies of all
written policies, procedures and guidelines relating to the SPPI Business,
including all underwriting policies, procedures and guidelines, other than those
written policies, procedures and guidelines which are not material to the
conduct or operation of the SPPI Business.
5. PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the date
hereof and the Closing Date.
(a) General. Each Party shall use its reasonable best efforts to take all
actions and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by the Transaction
Documents to which it is a party.
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(b) Regulatory Approvals. Each Party shall use its reasonable best efforts,
and shall reasonably cooperate with each other in such efforts, to obtain the
approvals of all regulatory authorities required to be obtained by Seller or
Buyer or by any Affiliate of Seller or Buyer in order to consummate the
transactions contemplated by the Transaction Documents. Seller and Buyer shall
make and cause their respective subsidiaries to make all necessary filings as
soon as practicable, including, without limitation, those required by the
Hart-Scott-Rodino Act and applicable insurance laws in order to facilitate
prompt consummation of the transactions contemplated by the Transaction
Documents. Each such Party hereby covenants to cooperate with the other such
Party to the extent reasonably necessary to assist in making reasonable
supplemental presentations to the Federal Trade Commission or the Antitrust
Division of the Department of Justice, and if requested by either of them, to
promptly amend or furnish additional information thereunder. Seller and Buyer
shall use reasonable best efforts to provide such information and communications
to Government Entities as such Government Entities may reasonably request. Each
Party shall provide to the other Party copies of all non-confidential portions
of applications filed or submitted with Government Entities in connection with
this Agreement and shall keep the other Party apprised of the status of matters
relating to completion of the transactions contemplated by the Transaction
Documents.
(c) Operation of Business. Prior to the Closing, except (i) as consented to
by Buyer in writing, (ii) for the repayment by St. Paul of loans from Economy,
(iii) that Seller's internal actuaries will undertake a review of the Economy
Companies' reserves shortly prior to the Closing Date and Economy will make such
adjustments to the reserves as such actuaries in good faith deem appropriate to
reflect the most recent information then available (it being understood that
this process may result in a strengthening or releasing of reserves, and that
any release of redundant reserves is expected to involve a dividend by Economy
in an amount up to the amount of the redundancy to Seller), (iv) for an
adjustment to Economy's reserves to ensure that the ULAE reserves attributable
to the portion of the SPPI Business conducted by Economy is equal to 6.0% of the
aggregate statutory loss reserves and allocated loss adjustment expense
reserves, and (v) as otherwise expressly contemplated in the Transaction
Documents, Seller shall, and covenants and agrees to cause each of the SPPI
Affiliates to, conduct the businesses of the SPPI Affiliates (including, without
limitation, underwriting, accounting, loss reserving practices and procedures
and investment practices and procedures) only in the Ordinary Course of
Business, to confer with Buyer concerning operational matters of a material
nature and to use their respective reasonable best efforts to preserve the
current business organization of each of the SPPI Affiliates, keep available the
services of the current officers, employees, agents, brokers and managers of
each of the SPPI Affiliates, and maintain the relationships and goodwill with
policyholders, suppliers, landlords, creditors, employees, agents, brokers,
managers and others having business relationships with any of the SPPI
Affiliates; it being understood that prior to the Closing Date, Seller shall
have transferred to an Economy Company (A) those employees who are primarily
dedicated to the SPPI Business and (B) a number of shared service employees
whose duties relate to, but are not limited to, the SPPI Business, necessary for
the conduct of the SPPI Business, selected in good faith by Seller, who as of
the date hereof are actively employed (within the meaning of ss.6(d)(i)), which
shall aggregate to approximately 1,700 employees (the "SPPI Transferred
Employees"). Prior to the Closing, except as consented to by Buyer in
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writing, and except as otherwise expressly contemplated in the Transaction
Documents, Seller shall, and covenants and agrees to, cause each of the SPPI
Affiliates not to make any material changes in their underwriting, account and
loss reserving practices and procedures and investment practices and procedures
with respect to the SPPI Business, and to maintain the relationships and
goodwill with policyholders, agents, brokers and others having a business
relationship with such SPPI Affiliate in respect of the SPPI Business. Prior to
the Closing, Seller covenants and agrees to cause each of the SPPI Affiliates to
use their reasonable best efforts to maintain the existing employment
relationships with the Business Employees. Without limiting the generality of
the foregoing, prior to the Closing, Seller shall not with respect to any of the
SPPI Affiliates, and covenants and agrees to cause the SPPI Affiliates not to:
(A) undertake any of the actions specified in clauses (ii) through (x)
of ss.4(f);
(B) terminate or amend any of the agreements set forth in ss.5(c)(B) of
the Seller Disclosure Schedule;
(C) induce, encourage or solicit for employment or employ with Seller
or its Affiliates (other than the Economy Companies) any Business
Employees, except as set forth in ss.5(c)(C) of the Seller Disclosure
Schedule;
(D) grant any powers of attorney; or
(E) enter into any agreement which, if existing on the date hereof,
would need to be disclosed on ss.4(k) of the Seller Disclosure Schedule.
(d) Corporate Examinations and Investigations; Confidentiality. Seller
will, and will cause each of the SPPI Affiliates and each of their respective
representatives to (i) permit Buyer and its accountants, counsel and other
authorized representatives of Buyer to have reasonable access during normal
business hours, during the period prior to Closing, and in a manner so as not to
unreasonably interfere with the normal business operations of the SPPI
Affiliates, to business operations, premises, properties, personnel and books of
or pertaining to the SPPI Affiliates, and tax records of the Economy Companies,
(ii) furnish Buyer and its accountants, counsel and other authorized
representatives with such additional financial, technical, operating, and other
data and information as Buyer may reasonably request, (iii) otherwise cooperate,
and cause its and their officers and employees to cooperate fully, with the
investigation by Buyer, and its accountants, counsel and other authorized
representatives, of the SPPI Affiliates in a manner so as not to unreasonably
interfere with the normal business operations of the SPPI Affiliates and (iv)
permit Buyer and its independent certified public accountants to examine all
accounting records and working papers pertaining to Economy's consolidated
balance sheet as of December 31, 1998 and as of the end of any subsequent
calendar quarter preceding the Closing Date and Statutory Statements for the
year ended December 31, 1998 and for any subsequent calendar quarter preceding
the Closing Date in a manner so as not to unreasonably interfere with the normal
business operations of Seller or the SPPI Affiliates. No investigation pursuant
to this ss.5(d) shall affect or be deemed to modify any representation or
warranty made by Seller. All
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requests for information made pursuant to this ss.5(d) shall be directed to an
executive officer of Seller or such other persons as may be designated by
Seller. Buyer will treat and hold as such any Confidential Information it
receives from Seller and the SPPI Affiliates in the course of the reviews
contemplated by this ss.5(d), in accordance with the terms of the
Confidentiality Agreement, dated May 27, 1999 between Buyer and St. Paul (the
"Confidentiality Agreement"). Seller agrees to hold any information so obtained
in confidence to the extent required by, and in accordance with, the provisions
of the Confidentiality Agreement as if Seller were the party obligated under
such agreement.
(e) Notice of Developments. Each Party shall as promptly as reasonably
practicable give notice to the other Party of (i) any fact or condition that
could (except as expressly contemplated herein) cause or constitute a breach of
any of its representations and warranties in ss.3 or ss.4 above and (ii) any
notice or other communication from any third party alleging that the consent of
such third party is or may be required in connection with the transactions
contemplated by the Transaction Documents.
(f) Reinsurance Matters. Seller agrees, and agrees to cause Economy, to
execute at or prior to the Closing the Commutation Agreement, with such changes
as the Parties may hereafter mutually agree. Buyer agrees to cause Economy to
take such actions, following the Closing, as may be required by such agreement
or as reasonably requested by Seller in relation thereto.
(g) Other Agreements. Buyer agrees to execute, and Seller agrees to
execute, and each Party agrees to cause its respective affected Affiliates to
execute, at or prior to the Closing Date, each of the Transaction Documents to
which they are a party in substantially the forms attached hereto, with such
changes as the Parties may hereafter mutually agree, and to execute such other
agreements as may be agreed to by the Parties.
(h) Additional Financial Statements. As soon as reasonably practicable
after they become available in the Ordinary Course of Business, Seller shall
furnish to Buyer any regularly prepared financial statements or Statutory
Statements of any of the Economy Companies with respect to any period ending
subsequent to March 31, 1999 and prior to the Closing Date.
(i) Pre-Closing Maintenance of Insurance. From the date hereof through the
Closing Date, Seller shall cause each of the SPPI Affiliates to maintain in
force (including necessary renewals thereof) the insurance obtained directly in
its name and covering it on the date hereof, except to the extent that such
insurance may be replaced with materially equivalent policies appropriate to
insure the assets, properties and business of the SPPI Affiliates to the same
extent as currently insured.
(j) Preservation of Licenses. From the date hereof up to the Closing Date,
Seller shall cause the SPPI Affiliates to use reasonable best efforts to
preserve their respective Licenses in full force and effect.
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(k) Intercompany Accounts. At least fifteen Business Days prior to the
Closing, Seller shall prepare and deliver to Buyer a statement setting out in
reasonable detail the calculation of all intercompany accounts (other than
accounts relating to or arising under reinsurance contracts) between any of the
Economy Companies, on the one hand, and Seller or any of its other Affiliates
(other than the Economy Companies), on the other hand. On the Closing Date,
Seller shall prepare and deliver to Buyer a statement setting forth any changes
in such accounts from the statement delivered pursuant to the preceding
sentence.
(l) Provision of Services to Seller. Prior to the Closing, the Parties will
negotiate in good faith, and at the Closing the Parties will enter into, a
services agreement, substantially in the form attached hereto as Exhibit E-2
(the "Buyer Services Agreement").
(m) Year 2000 Matters.
(i) Seller will continue to develop and actively execute its Seller Y2K
Plan as contemplated by ss.3(a)(vii).
(ii) Buyer will continue to develop and actively execute its Buyer Y2K
Plan as contemplated by ss.3(b)(viii).
(n) Florida Hurricane Catastrophe Fund. Seller will maintain its current
level of participation in the Florida Hurricane Catastrophe Fund.
(o) Hurricane Catastrophe Records. Seller shall provide to Buyer, within
five (5) Business Days of this Agreement, the data files that contain personal
lines information that is submitted by Seller to Risk Management Solutions, Inc.
for hurricane and earthquake catastrophe modeling.
(p) Cooperation. Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each Party agrees to use its reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other Party in doing, all things
necessary, proper or advisable to consummate and make effective, as
expeditiously as practicable, the transactions contemplated by the Transaction
Documents and the underwriting of new and renewal policies of SPPI Business by
the Buyer. Without limiting the generality of the foregoing: (i) Seller shall
allow Buyer reasonable access to agents and vendors with respect to the SPPI
Business, shall participate with Buyer in joint communications with
policyholders, agents and vendors (in respect of such business and the
transactions contemplated hereby and, in the case of agents, the arrangements
with respect to incentive plans referred to in ss.6(i)), as well as state
insurance departments having jurisdiction over the Economy Companies or the SPPI
Business, and shall allow Buyer reasonable access to reinsurance records of
Seller and its Affiliates with respect to the SPPI Business; (ii) Seller shall
provide Buyer as soon as practicable after the date hereof with information
concerning the Business Employees with respect to the date of hire, title and
current rate of compensation, including bonus (if any) of each such employee;
and (iii) Buyer and Seller will use their reasonable best efforts to ensure
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that all material SPPI IP licensed to Seller or an SPPI Affiliate is transferred
or licensed to Buyer or a Buyer Affiliate. To the extent satisfactory transfers
or license agreements for material SPPI IP cannot be arranged, the Parties will
work in good faith to ensure that satisfactory alternative arrangements are made
to ensure that Buyer has access to alternative but comparable Intellectual
Property.
Each of Seller and Buyer agree that it or one or more of its Affiliates
will enter into a license agreement effective as of the Closing granting Buyer
and its Affiliates the right to use certain of Seller's and its Affiliates'
corporate names and acronyms (including the "St. Paul" and "USF&G" names or
derivatives thereof) in connection with, and solely incidental to, new issuances
and renewals of SPPI Policies by the SPPI Entities as contemplated by the
Transaction Documents.
6. POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
(a) General; Confidentiality. In case at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each Party will take such further action (including the prompt
furnishing, execution, acknowledgment and delivery of any further assurances,
instruments and documents). Each Party will keep, and will cause its Affiliates
(including its agents, representatives and employees) to keep, confidential any
Confidential Information of the other Party that it receives in the course of
performing its obligations under this Agreement and will not, without the other
Party's written consent, disclose any of such Confidential Information to any
third party, or use any of such Confidential Information except in connection
with performing its obligations hereunder. Notwithstanding the foregoing, to the
extent that a Party may become legally compelled, in connection with its
financial, regulatory or tax reporting, its disclosure obligations under
applicable securities laws or otherwise, such Party may disclose such
information if such Party shall first have used reasonable best efforts to, and
if practicable, shall have afforded the other Party an opportunity to obtain an
appropriate protective order or other assurance of confidential treatment for
the information required to be disclosed, in each case to the reasonable
satisfaction of such other Party. Upon termination of this Agreement, each Party
will return, and will cause its Affiliates (agents, representatives and
employees, as applicable) to return, to the other party all tangible embodiments
(including all copies) of the Confidential Information which are in its
respective possession.
(b) Cooperation. Upon the terms and subject to the conditions and other
agreements set forth in this Agreement, each Party agrees to use its reasonable
best efforts to take, or cause to be taken, all actions, and to do, or cause to
be done, and to assist and cooperate with the other Party in doing, all things
necessary, proper or advisable to consummate and make effective, as
expeditiously as practicable, the transactions contemplated by the Transaction
Documents. Buyer and Seller will use their reasonable best efforts to ensure
that all material SPPI IP licensed to Seller or an SPPI Affiliate is transferred
or licensed to Buyer or a Buyer Affiliate. To the
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extent satisfactory transfers or license agreements for material SPPI IP cannot
be arranged, the Parties will work in good faith to ensure that satisfactory
alternative arrangements are made to ensure that Buyer has access to alternative
but comparable Intellectual Property.
(c) Transition to Buyer Policy Forms. (i) Commencing on the Closing Date
and for a period of three years thereafter, as reasonably requested by Buyer,
Seller shall issue or renew contracts of the type included in the SPPI Business,
provided, that the Seller shall not be required to issue contracts pursuant to
this ss.6(c) in any state if (A) Buyer has completed the modification of systems
used principally in the conduct of the SPPI Business to permit such systems to
input, process and output information in accordance with Buyer's business
practices and (B) Buyer has obtained insurance department approval of its own
rates, forms and rules in such state. Buyer shall use its reasonable best
efforts, with the assistance and cooperation of Seller, to complete the systems
modifications and to obtain the policy rates, forms and rules approvals referred
to in the previous sentence as soon as is reasonably practicable after the
Closing Date.
(d) Employees and Employee Benefits.
(i) For purposes of this Agreement, "Business Employees" shall mean the
SPPI Transferred Employees and the employees who are actively employed by
the Economy Companies on the Closing Date, as listed in ss.6(d)(i) of the
Seller Disclosure Schedule. For purposes of this Agreement, "actively
employed" shall mean employees who as of the Closing Date are currently
performing personal services primarily in the conduct of the SPPI Business,
including employees on temporary leaves of absences and short-term
disability who are reasonably expected to return to active employment, but
excluding former employees, employees on long-term disability and other
employees on leave who are not expected to return to active employment; it
being understood that any employee set forth in ss.6(d)(i) of the Seller
Disclosure Schedule who is on long-term disability as of the Closing Date
and who returns to active employment with Buyer or any of its Affiliates,
within the six-month period following the Closing Date, shall be considered
a "Business Employee" as of the date of such employee's return to active
employment for all purposes hereunder. For at least one year following the
Closing Date, Buyer shall provide or shall cause its Affiliates to provide
to the Business Employees (i) the same or greater base salaries and wages
as in effect prior to the Closing Date (other than reductions based on a
change in responsibilities, position or hours), and (ii) employee benefits
on a basis no less favorable than those provided to similarly situated
employees of Buyer and its Affiliates which are engaged in personal
insurance operations. Notwithstanding the foregoing, during the one-year
period commencing on the Closing Date, Buyer shall provide the Business
Employees with severance benefits that are at least equal to the schedule
of severance benefits set forth in ss.6(d)(ii) of the Seller Disclosure
Schedule. Seller shall be responsible for all accrued salary, wages and
bonuses with respect to the Business Employees, as of the Closing Date, but
Seller shall be entitled to receive payment from the Economy Companies of
any intercompany debt which is outstanding as of the Closing Date, set
forth in ss.6(d)(i) of the Seller Disclosure Schedule, in respect of such
items paid by Seller on or prior to the Closing Date.
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Notwithstanding the foregoing or anything elsewhere in this ss.6(d),
nothing in this Agreement shall be construed as limiting in any way the
right of Buyer or its Affiliates to terminate the employment of any
Business Employee or to modify, amend or terminate any employee benefit
plan.
(ii) Effective on the later of the Closing Date or the expiration of
the Leasing Period (the "Transfer Date"), each Business Employee who is a
participant in The St. Paul Companies, Inc. Stock Ownership Plan and each
Business Employee who is a participant in The St. Paul Companies, Inc.
Executive Savings Plan shall cease to be an active participant therein and
Seller shall take such actions as are necessary to cause the Business
Employees to be vested in his or her account balances thereunder, pro-rated
for the partial year of service in which the Closing Date occurs. Seller
shall amend The St. Paul Companies, Inc. Stock Ownership Plan as necessary
to provide that the Business Employees shall be entitled to share in the
allocation of company matching contributions and performance shares based
on their compensation and pre-tax employee contributions up to the Transfer
Date (subject, with respect to amounts attributable to the Leasing Period,
to Buyer's obligation to reimburse Seller under the provisions of
ss.6(d)(vi)). As soon as practicable following the Transfer Date, Seller
shall offer each of the Business Employees the option of electing a
distribution from The St. Paul Companies, Inc. Stock Ownership Plan and The
St. Paul Companies, Inc. Savings Plus Plan (collectively, "Seller DC
Plans"), which distribution shall be offered and made in compliance with
Section 401(k)(10) of the Code to the extent applicable. Buyer agrees to
cause its tax qualified defined contribution plan to permit each such
Business Employee who is a participant in the Seller DC Plans to effect a
direct rollover of the taxable portion of such participant's accrued
benefits under Seller DC Plans in cash to Buyer's defined contribution plan
("Buyer DC Plan"), provided Buyer determines such distribution constitutes
an "eligible rollover distribution" under Section ss.401(a)(31) of the
Code; it being understood that Buyer may, in its sole discretion, determine
to accept or not accept the direct rollover of outstanding participant
loans held by any Business Employee. Seller and Buyer agree to cooperate in
order to effect the direct rollover of accrued benefits with respect to
those Business Employees who elect a direct rollover of their distribution
from Seller DC Plans to Buyer's DC Plan in accordance with the foregoing.
Buyer agrees to take all actions necessary to cause the Buyer DC Plan to
accept the qualifying direct rollovers elected by the Business Employees in
accordance with the foregoing.
(iii) The St. Paul Companies, Inc. Employees' Retirement Plan (the
"Seller Retirement Plan") shall retain liability for all accrued benefits
of the Business Employees under the Seller Retirement Plan.
(iv) Seller shall retain liability to provide post-retirement welfare
benefits for all employees of the SPPI Entities and the Economy Companies
(and their dependents) who are eligible to receive such benefits as of the
Closing Date and has in fact retired as of such date. Buyer shall provide
post-retirement welfare benefits to all Business Employees who are eligible
for such benefits as of the Closing Date, but who have not
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retired as of the Transfer Date, on the same basis as it provides
post-retirement welfare benefits for its similarly situated employees who
are engaged in personal insurance operations. Seller and Buyer agree that
Seller shall pay Buyer an amount equal to the accrued post-retirement
welfare benefits for Business Employees who are eligible for such benefits
as of the Closing Date, but who have not retired as of the Transfer Date,
calculated on the basis of FAS 106 and the assumptions utilized by Seller
in its most recent financial statements prepared in accordance with GAAP.
Seller shall calculate such amount as soon as practicable following the
Transfer Date, and Buyer shall be entitled to review and approve such
calculation as to its accuracy (but shall not contest the assumptions
stated above). The Parties agree that any such payment shall be made as
soon as practicable thereafter and shall be deemed to be an adjustment to
the portion of the Aggregate Purchase Price allocated to the Shares and
shall be treated by the parties as an adjustment to such purchase price for
purposes of Federal and state taxes; provided, however, that the amount of
such adjustment shall not reduce the portion of the Aggregate Purchase
Price allocated to the Shares to less than the amount determined under
clause (x) of ss. 2(a)(vii) hereof. Notwithstanding the foregoing, if the
Closing Date does not occur during the calendar year 1999, all references
herein to the term "Transfer Date" shall be deemed to be references to the
"Closing Date."
(v) With respect to each Business Employee:
(A) Buyer shall waive pre-existing condition exclusions, evidence
of insurability provisions, waiting period requirements or any similar
provisions under any welfare benefit plan maintained or sponsored by or
contributed to by, Buyer for such Business Employee as of the Transfer
Date; provided such conditions, waiting periods, exclusions or similar
provisions did not preclude coverage for such Business Employee as of
the Transfer Date under the comparable plans of Seller.
(B) Seller's welfare benefit plans shall be responsible for claims
covered by Seller's welfare benefit plans, provided that such claims
were incurred prior to the Transfer Date (subject, in the case of
claims incurred during the Leasing Period, to Buyer's obligation to
reimburse Seller under the provisions of ss.6(d)(vi)); and Buyer shall
assume responsibility for welfare benefit claims relating to Business
Employees incurred on or after the Transfer Date under its welfare
benefit plans. For this purpose, a claim is incurred (i) when the
medical or other service giving rise to the claim is performed, (ii) in
the case of death, at the time of such death, and (iii) in the case of
long-term disability, the date as of which an employee has been
determined to be eligible for long-term disability benefits under the
applicable long-term disability plan (as determined by the relevant
insurance carrier).
(C) Buyer shall recognize the service of each Business Employee
with either Seller or Seller's other Affiliates prior to the Transfer
Date for all purposes
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(other than benefit accrual under Buyer's pension plans) under each of
Buyer's employee benefit plans (including but not limited to vacation
and severance entitlement; provided, however, that in the case of
post-retirement welfare benefits, Buyer shall recognize such service
solely with respect to Business Employees who are eligible for such
benefits as of the Closing Date, but who have not retired as of the
Transfer Date.
(D) Seller shall be responsible for satisfying obligations under
ss.601 et. seq. of ERISA and ss.4980B of the Code ("COBRA"), to provide
continuation coverage to or with respect to any Business Employee in
accordance with law with respect to any "qualifying event" occurring
before the Transfer Date (subject, with respect to qualifying events
occurring during the Leasing Period, to Buyer's obligation to reimburse
Seller under the provisions of ss.6(d)(vi)). Buyer shall be responsible
for satisfying obligations under COBRA to provide continuation coverage
to or with respect to any Business Employee in accordance with law with
respect to any "qualifying event" which occurs on or following the
Transfer Date.
(E) Not later than March 15, 2000, Buyer shall pay the 1999 annual
bonuses for performance in respect of the period from January 1, 1999
through the Closing Date to the SPPI Transferred Employees who remain
employed by Buyer or any of its Affiliates on March 1, 2000 (the "Bonus
Eligible Employees") in an amount specified by Seller based upon each
Bonus Eligible Employee's target bonus adjusted by actual performance
in relation to financial measures and individual objectives under The
St. Paul Companies, Inc. Annual Incentive Plan or The St. Paul
Companies, Inc. Management Annual Incentive Plan, as applicable
(applied by Seller in good faith consistent with past practice),
pro-rated for the number of days from January 1, 1999 through the
Closing Date (the "Accrued Bonuses"). In connection therewith, Buyer
agrees to provide Seller with the names of the Bonus Eligible Employees
promptly following March 1, 2000, but in no event later than March 8,
2000. Seller shall reimburse Buyer for the aggregate amount of the
Accrued Bonuses no later than March 15, 2000.
(vi) Notwithstanding anything to the contrary contained in this
ss.6(d), for the period commencing as of the Closing and ending 12:01 a.m.
Central Standard Time on January 1, 2000 (the "Leasing Period"), Seller
shall retain all Business Employees as employees of Seller and shall lease
the services of such Business Employees to Buyer. Buyer agrees to promptly
reimburse Seller, after receiving written request from Seller setting forth
the details thereof, for all compensation, payroll or other taxes, employee
benefits, out-of-pocket costs, charges, expenses, fees and any other
liability (including any liability for wrongful termination resulting from
a termination of a Business Employee made at the request of Buyer) incurred
by Seller in the ordinary course with respect to Business Employees and
their dependents with respect to the Leasing Period (including the accrual
of additional pension, bonus and vacation entitlement accrued for
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the Leasing Period that is vested and/or paid by Seller during the Leasing
Period); provided that with respect to any Business Employee who has a
"qualifying event" with respect to the continuation coverage requirements
under COBRA prior to the end of the Leasing Period (either with respect to
himself or his spouse or dependents), Buyer also agrees to reimburse Seller
for the amount of claims paid by Seller in excess of $500,000 in the
aggregate per Business Employee (or per each of such Business Employee's
spouse or dependents). All calculations for amounts to be reimbursed
hereunder shall be made in a manner reasonably consistent with Seller's
past practice for intercompany allocation of expenses to the SPPI Entities
and the Economy Companies in the manner to be specifically agreed in
writing by Seller and Buyer within 10 Business Days of the date hereof.
During the Leasing Period, (i) the Business Employees shall remain
participants in the same benefit plans and programs of Seller, under the
same terms and conditions that such Business Employees participated in
immediately prior to the Closing Date, (ii) Seller shall continue to pay
the same regular compensation to the Business Employees as was in effect as
of the Closing Date in a timely manner and consistent with past practices,
(iii) Seller shall be responsible for the payment of all payroll taxes
(FICA, FUTA and withholding) and other applicable Taxes in respect of the
Business Employees, (iv) the Business Employees shall be subject to the
management and direction of Buyer as lessor and (v) Seller shall not
terminate the employment of any Business Employee without the consent of
Buyer, which consent shall not be unreasonably withheld.
(vii) Seller shall be responsible for all deferred compensation due
under Seller's unfunded non-qualified deferred compensation plans with
respect to services rendered prior to the Transfer Date by any Business
Employee (subject, with respect to amounts attributable to the Leasing
Period, to the Buyer's obligation to reimburse Seller under the provisions
of ss.ss.6(d)(vi)).
(viii) Buyer shall indemnify and defend Seller and hold Seller harmless
from and against any Adverse Consequences which may be incurred or suffered
by Seller under the Worker Adjustment and Retraining Notification Act or
any similar state law with respect to the Business Employees arising out
of, or relating to, any actions taken by Buyer or its Affiliates with
respect to the Business Employees on or after the Closing Date.
(ix) On the Closing Date and for a period of two years thereafter, (A)
neither Seller nor any of its Affiliates shall induce, encourage or solicit
for employment with Seller or any of its Affiliates any Business Employees
(except those listed in ss.5(c)(C) of the Seller Disclosure Schedule) and
(B) neither Buyer nor any of its Affiliates shall induce, encourage or
solicit for employment with Buyer or any of its Affiliates any employees of
Seller or Affiliates of Seller.
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(e) Tax Matters.
(i) Seller hereby indemnifies Buyer and each of the Economy Companies
against and agrees to hold them harmless from: (i) any Tax of any of the
Economy Companies with respect to taxable periods ending before the Closing
Date; (ii) with respect to taxable periods beginning before the Closing
Date and ending on, as of the close of, or after the Closing Date, any
Taxes imposed on or in respect of any of the Economy Companies which are
allocable, pursuant to ss.6(e)(ii), to the portion of such period ending on
the Closing Date; (iii) any Taxes imposed on or in respect of any
corporation (other than Taxes imposed in a Post-Closing Tax Period on any
of the Economy Companies, or Buyer or any affiliate of Buyer) with which
any of the Economy Companies filed a Tax Return on a combined or
consolidated basis for any taxable period that includes the Closing Date,
or that ends on, as of the close of or before the Closing Date (including,
without limitation, any Taxes for which any of the Economy Companies would
be liable pursuant to the provisions of Treasury Regulation Section
1.1502-6 (the sum of (i), (ii) and (iii) being referred to herein as a "Tax
Loss"); provided, however, that Seller shall have no obligation to
indemnify Buyer or any of the Economy Companies from any Taxes allocable
under ss.6(e)(ii)(x) and (y) until the aggregate amount of such Taxes
exceeds the aggregate amount of such Taxes accrued and reflected as a
current liability on Economy's statutory balance sheet as of March 31,
1999, adjusted for payments under ss.6(e)(iv), plus prior estimated Tax
payments made by Seller, an Affiliate of Seller or any of the Economy
Companies prior to Closing with respect to such accrued Taxes (the "Tax
Reserves"), in which case Buyer will be entitled to indemnity for the
entire excess amount. Seller shall have no obligation to indemnify Buyer or
any of the Economy Companies from any Taxes allocable under ss.6(e)(ii)(z)
until the aggregate amount of such Taxes exceeds $20,000, in which case
Buyer will be entitled to indemnity for the entire excess amount.
(ii) In the case of Taxes that are payable with respect to a taxable
period that begins before the Closing Date and ends on, as of the close of,
or after the Closing Date, the portion of any such Tax that is allocable to
the portion of the period ending on the Closing Date shall be:
(x) in the case of any Taxes based upon or related to income or
receipts, the amount which would be payable if the taxable year ended
or is treated as ending on the Closing Date;
(y) in the case of any premium tax, the amount which would be
payable with respect to the direct premiums written during the period
that ends on the Closing Date (taking into account the rates and
credits allocable to the pre-Closing period that would be available if
such period were treated as a separate year for premium tax purposes);
and
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(z) in the case of Taxes other than taxes based upon or related to
income or receipts and premium taxes, the amount which would be payable
if the taxable year ended or is treated as ending at the end of the
Closing.
For purposes of this ss.6(e), "Post-Closing Tax Period" means any Tax period
ending after the Closing Date, except that for Tax periods beginning before and
ending after the Closing Date, only the portion of such period beginning after
the Closing Date will be considered to be a "Post-Closing Tax Period."
(iii) Buyer hereby indemnifies Seller against and agrees to hold it
harmless from: (i) any Tax of any of the Economy Companies with respect to
taxable periods that begin after the Closing Date; (ii) with respect to
taxable periods beginning before the Closing Date and ending after the
Closing Date, any Taxes imposed on or in respect of any of the Economy
Companies which are allocable, pursuant to ss.6(e)(ii), to the portion of
such period beginning after the Closing Date (the sum of (i) and (ii) being
referred to herein as a "Tax Loss");
(iv) Buyer shall pay to Seller the amount of the excess, if any, of the
Tax Reserves over the actual amount of such Taxes paid by Buyer (or by or
on behalf of any of the Economy Companies, including any estimated payment
of Taxes). Such payment will be made within thirty (30) days of the date of
filing of the last to be filed of any Tax Return for taxable periods that
begin before and end on or after the Closing Date.
(v) Seller or an Affiliate of Seller shall file or cause to be filed
when due all Tax Returns that are required to be filed by or with respect
to any of the Economy Companies for taxable years or periods ending on or
before the Closing Date and shall pay any Taxes due in respect of such Tax
Returns, and Buyer shall file or cause to be filed when due all Returns
with respect to Taxes that are required to be filed by or with respect to
any of the Economy Companies for taxable years or periods ending after the
Closing Date and shall remit any Taxes due in respect of such Tax Returns.
Seller shall pay Buyer the Taxes for which Seller is liable pursuant to
paragraph (i) but which are payable with Tax Returns to be filed by Buyer
pursuant to the previous sentence by the later of (x) 10 days prior to the
due date for the filing of such Tax Returns and (y) 30 days from the
receipt by Seller of notification from Buyer of the amount due. In order to
assist Buyer in assuming responsibility for the preparation of Tax Returns
which Buyer is obligated to file pursuant to this paragraph (v), Seller
shall prepare and provide to Buyer any such Tax Returns that are required
to be filed within the 90-day period following the Closing Date. The actual
cost related to the preparation and delivery of such Tax Returns shall be
shared equally by Seller and Buyer.
(vi) Seller and Buyer may agree to net the payments to be made pursuant
to paragraphs (iv) and (v).
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(vii) In the event that any Tax liability for which Seller or Buyer, as
the case may be, has made a payment under paragraph (iv) or (v), is
determined pursuant to a Final Determination (as defined below) to be
different than the Tax liability with respect to which such payment was
previously made, then Seller and Buyer shall redetermine the amount of the
payments to be made pursuant to paragraphs (iv) and (v) based on the
redetermined Tax liability, and Seller or Buyer, as the case may be, shall
make a payment to the other party with respect to the redetermined amount.
If Buyer or Seller, as the case may be, makes a payment pursuant to this
paragraph (vii) in respect of an amount previously paid to Buyer or Seller
by the other party, the payment under this paragraph (vii) shall include
interest calculated from the date of the original payment to the date a
payment is made under this paragraph (vii) at the Applicable Rate. For
purposes of this ss.6(e), a "Final Determination" means (x) any final
determination of liability in respect of a Tax that, under applicable law,
is not subject to further appeal, review or modification through
proceedings or otherwise (including the expiration of a statute of
limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations) or (y) the payment of such
Tax by the party responsible for payment of such Tax under applicable law,
with respect to any item disallowed or adjusted by a taxing authority,
provided that such responsible party determines that no action should be
taken to recoup such payment.
(viii) Any payment by Seller or Buyer, as the case may be, with respect
to any Tax Loss, to the extent not previously made under paragraph (iv),
(v), or (vii), shall be made not later than 30 days after receipt by Seller
or Buyer, as the case may be, of written notice stating that any Tax Loss
has been paid by Buyer or Seller, as the case may be, or any of their
respective affiliates.
(ix) Buyer shall pay to Seller (x) the highest rate provided in Section
11 of the Code multiplied by the amount of any Economy Companies' net
operating loss carryforward to a Post-Closing Tax Period, with respect to
net operating losses arising in any Tax Period ending on or before the
close of business on the Closing Date, which is included in any Tax Return
of Buyer or an Affiliate of Buyer, and (y) 100% of the amount of any
Economy Companies tax credit carryforward, with respect to tax credits
arising in any Tax Period ending on or before the close of business on the
Closing Date, which is included in any Tax Return of Buyer or an Affiliate
of Buyer. Any such payment shall be made within 30 days after the filing of
the applicable Tax Return in which such net operating loss carryforward or
credit carryforward is included. In the event that all or a portion of the
amount of any net operating loss carryforward or credit carryforward for
which Buyer has made a payment to Seller under this paragraph (ix) is
disallowed pursuant to a Final Determination, then Seller and Buyer shall
redetermine the amount of the payment to be made pursuant to this paragraph
(ix) and Seller or Buyer, as the case may be, shall make a payment to the
other Party with respect to the redetermined amount. If Seller or Buyer, as
the case may be, makes a payment pursuant to this paragraph (ix) in respect
of an amount previously paid to Seller by Buyer, the payment under this
paragraph (ix) shall include interest calculated from the date of the
original
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payment to the date a payment based on the redetermined amount is made at
the Applicable Rate.
(x) If Seller's indemnification obligation under this ss.6(e) arises in
respect of an adjustment which makes allowable to Buyer, any of its
Affiliates or, effective upon the Closing, the Economy Companies, any
deduction, amortization, exclusion from income or other allowance (a "Tax
Benefit") which would not, but for such adjustment, be allowable, then
within 30 days after the filing of the applicable Tax Return in which such
Tax Benefit is claimed, Buyer shall pay to Seller the amount as certified
by the Buyer's tax department equal to the excess of (x) the amount of
Taxes that would have been payable by any of the Economy Companies, Buyer
or any Affiliate of Buyer with respect to such Tax period in the absence of
such Tax Benefit over (y) the amount of Taxes actually paid; provided,
however, that Buyer shall be required to make a payment to Seller under
this paragraph (x) only to the extent that Seller has made an actual
indemnity payment to Buyer. If Buyer's indemnification obligation under
this ss.6(e) arises in respect of an adjustment which makes allowable to
Seller, any of its Affiliates or, for Tax periods ending prior to the
Closing, the Economy Companies, any Tax Benefit which would not, but for
such adjustment, be allowable, then within 30 days after the filing of the
applicable Tax Return in which such Tax Benefit is claimed, Seller shall
pay to Buyer the amount as certified by the Seller's tax department equal
to the excess of (x) the amount of Taxes that would have been payable by
any of the Economy Companies, Seller or any Affiliate of Seller with
respect to such Tax period in the absence of such Tax Benefit over (y) the
amount of Taxes actually paid; provided, however, that Seller shall be
required to make a payment to Buyer under this paragraph (x) only to the
extent that Buyer has made an actual indemnity payment to Seller.
(xi) Any tax allocation or tax sharing agreement that may have been
entered into by any of the Economy Companies (other than the agreement
among the Economy Companies) shall be terminated as to all of the Economy
Companies as of the Closing Date, and no payments which are owed by any of
the Economy Companies shall be made thereunder.
(xii) Each Party agrees to provide or cause its Affiliates to provide
at no cost and within a reasonable time any information reasonably
necessary for the preparation of any tax returns or for addressing any
audit issues.
(xiii) It is the intent of Buyer and Seller that Buyer or Seller, as
the case may be, shall make one payment to the other party under ss.6 and
ss.8 of this Agreement in respect of any Tax or any liability, cost,
expense, loss, damage, assessment, settlement or judgment, and once such
payment has been made, such Tax, liability, cost, expense, loss, damage,
assessment, settlement or judgment shall not give rise to any further
payment under ss.6 or ss.8; provided, however, that any such payment shall
be calculated on an after-Tax basis giving effect to the Tax consequences
of the payment, and the loss or expense for which indemnification is being
made, to the indemnified party.
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(xiv) All payments under this ss.6(e) shall be treated by the Parties
as an adjustment to the purchase price.
(xv) At the election of Buyer, Seller and Buyer shall take all actions
necessary and appropriate (including timely filing such forms, Tax Returns,
elections, schedules and other documents as may be required), at each
Party's cost and expense, to effect and preserve a timely Section
338(h)(10) election (including, at the election of Buyer, a Section
338(h)(10) election in respect of any acquired subsidiary) in accordance
with the requirements of Section 338 of the Code (and any corresponding
elections under state or local tax law) (collectively the "Section
338(h)(10) Elections"), and Seller and Buyer shall report the sale of the
Shares pursuant to this Agreement consistently with the Section 338(h)(10)
Elections and shall take no position contrary thereto or inconsistent
therewith in any Tax Return, in any discussion with or proceeding before
any taxing authority, or otherwise. Buyer shall notify Seller in writing of
its decision whether to make a Section 338(h)(10) Election within 60 days
of Buyer's receipt of the Closing Balance Sheet pursuant to ss.2(d)(ii)
hereof. Seller shall deliver to Buyer five copies of an Internal Revenue
Form 8023 ("Election under Section 338 for Corporations Making Qualified
Stock Purchases"), completed as reasonably agreed by the parties and duly
executed by the Seller within 20 days of receipt from Buyer of the written
notification referred to in the previous sentence. Buyer shall be
responsible for the preparation and filing of all forms and documents
required in connection with the Section 338(h)(10) Elections and shall
provide Seller with copies of (A) any necessary corrections, amendments or
supplements to such Form 8023 as reasonably agreed to by the Parties or as
necessary to conform the allocation of the purchase price to the Allocation
Statement (as defined below) or any Revised Statement (as defined below),
(B) all attachments required to be filed therewith pursuant to the
applicable Treasury regulations, and (C) any comparable forms and
attachments with respect to any applicable state or local elections being
made pursuant to the Section 338(h)(10) Elections. At the request of Buyer,
Seller shall execute and deliver to Buyer, within ten days after a request
therefor by Purchaser, such documents or forms as are required by any Tax
laws properly to complete the Section 338(h)(10) Elections. Seller and
Buyer shall cooperate fully with each other and make available to each
other such Tax data and other information as may be reasonably required by
Seller and Buyer in order timely to file the Section 338(h)(10) Elections
and any other required statements or schedules. Seller shall (A) promptly
execute and deliver to Buyer any amendments subsequent to the filing of the
Section 338(h)(10) Elections to Form 8023 (and any comparable state and
local forms) and attachments which are required to be filed under
applicable law and are reasonably requested by Buyer, (B) comply with all
of the requirements of Section 338(h)(10) of the Code and the Treasury
regulations thereunder, and (C) take no action inconsistent with the
requirements for filing the Section 338(h)(10) Elections under the Code and
the applicable Treasury regulations. Buyer shall provide to Seller a
proposed statement (the "Allocation Statement") allocating the purchase
price and any other payments made by Buyer pursuant to this Agreement and
any other items that are treated as additional purchase price for tax
purposes, among the assets of the Economy Companies. Within 20 days
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after the receipt of such Allocation Statement, Seller shall propose to
Buyer any changes to the Allocation Statement or shall indicate its
concurrence therewith. Thereafter, Buyer shall provide to Seller from time
to time revised copies of the Allocation Statement (the "Revised
Statements") so as to report any matters on the Allocation Statement that
need updating (including purchase price adjustments, if any). Within 20
days after the receipt of any Revised Statement, Seller shall propose to
Buyer any changes to such Revised Statement or shall indicate its
concurrence therewith, which concurrence shall not be unreasonably
withheld. Buyer and Seller shall endeavor in good faith to resolve any
differences with respect to the Allocation Statement or any Revised
Statement within 10 days after Buyer's receipt of notice of objections or
suggested changes from Seller. The costs of preparing the Allocation
Statement and any supporting materials, including any appraisals, shall be
borne by Buyer. If Buyer elects to make the Section 338(h)(10) Elections,
Buyer and Seller shall allocate the purchase price in connection therewith
in accordance with the Allocation Statement or, if applicable, the last
Revised Statements, provided by Buyer to Seller and agreed to by Buyer and
Seller pursuant to this paragraph, and subject to the requirements of any
applicable Tax law or election, all Tax Returns and reports filed by Buyer
and Seller shall be prepared consistently with such allocation. If Seller
shall have withheld its consent to such allocation, which consent shall not
be unreasonably withheld, and Buyer and Seller have acted in good faith to
resolve the differences with respect to the items on the Allocation
Statement or any Revised Statement and, thereafter, Buyer and Seller are
unable to resolve such differences which in the aggregate are material in
relation to the aggregate purchase price for the assets, Buyer and Seller
shall, subject to the requirements of any applicable Tax law or election,
file all Tax Returns and reports consistent with the allocation provided in
such schedules except with respect to the items that are the subject of
such material difference.
(f) Use of Names. Notwithstanding any inference or prior course of conduct
to the contrary, and except as necessary in order for Buyer to exercise its
rights and perform its obligations as contemplated by the Buyer Reinsurance and
Facility Agreements and the Buyer Services Agreement, in no event shall Buyer or
any Affiliate of Buyer have any right to use any corporate name or acronym of a
Seller or any of its Affiliates in any jurisdiction, including the names and
acronyms set forth in ss.6(f)(i) of the Seller Disclosure Schedule, or any
registered or unregistered trademark, trade name, or any registered or
unregistered service mark or any application or registration therefor, owned by,
licensed to or used by a Seller or any of its Affiliates or any other name, term
or identification that suggests, simulates or is confusing due to its similarity
to any of the foregoing, except to the extent specified in ss.6(f)(ii) of the
Seller Disclosure Schedule.
(g) Transfer of Data. Seller will fully cooperate with and use its
reasonable best efforts to transfer to Buyer, at Buyer's request, copies of any
and all of its or its Affiliates' documents, data and information (including but
not limited to policy forms, expiration files, customer account records, and
underwriting, claims and processing materials, and any correspondence or other
communications related thereto), whether in written or electronic form, which
are necessary, appropriate or desirable for the Buyer to perform its premium
processing,
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reserving, accounting, investing, compliance, information technology, human
resources, administrative claims handling, underwriting and other functions with
respect to the transferred SPPI Assets. Any such data and information in the
form used by Seller shall be provided to Buyer at no cost.
(h) Non-Competition. Except as contemplated by this Agreement or any of the
Transaction Documents:
(i) For a period of five (5) years following the Closing Date, neither
Seller nor any of its Affiliates shall (A) offer, issue, sell, refer or
promote, directly or indirectly, any lines of insurance included within the
SPPI Business in the United States or its territories; (B) provide
administrative services with respect to any lines of insurance included
within the SPPI Business in the United States or its territories; or (C)
otherwise engage in any lines of insurance included within the SPPI
Business in the United States or its territories; provided, however, that
Seller or its Affiliates may engage in the activities described in the
foregoing clauses (A), (B), or (C) in connection with the sale or servicing
of a line of insurance included within the SPPI Business to the extent they
are immaterial, incidental and an accommodation to specific policies of
commercial insurance written by Seller or an Affiliate;
(ii) For a period of five (5) years following the Closing Date, neither
Seller nor any of its Affiliates shall directly or indirectly offer, issue,
sell, refer or promote nonstandard personal automobile liability insurance
through any of the agents of either Seller or any of the Seller's
Affiliates that, as of any time in the 12 months prior to the Closing,
offered, wrote, produced, issued, sold or promoted any lines of insurance
included within the SPPI Business on behalf of the SPPI Affiliates (the
"Personal Lines Agents"); provided, however, that Seller or its Affiliates
may offer, issue, sell, refer or promote, directly or indirectly, any such
insurance through a Personal Lines Agent of the following Seller Affiliates
with which such entities had a prior relationship: Victoria Fire and
Casualty Co., Titan Indemnity Company, Titan Insurance Company, Victoria
Insurance Co., Victoria Automobile Insurance Co. and Victoria National
Insurance Co.; and provided, further, however, that if on the Closing Date
the number of such Personal Lines Agents (as certified by Seller to Buyer)
exceeds 100, Buyer and Seller will consult and, if Buyer requests, Seller
will terminate the appointment of such number of agents as is necessary to
reduce the number of such agents to a number that is acceptable to Buyer,
which number shall not be less than 100.
(iii) Notwithstanding any other provision of this ss.6(h) to the
contrary, any entity that becomes an Affiliate of Seller following the
Closing Date by means of acquisition, merger, or any other business
combination (a "New Affiliate") may offer, issue, sell, refer or promote,
directly or indirectly, any lines of insurance included within the SPPI
Business in the United States or its territories; provided that the New
Affiliate does not offer, issue, sell, refer or promote, directly or
indirectly, any such insurance though a Personal Lines Agent with which
such New Affiliate did not have a prior
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relationship; the New Affiliate does not use the St. Paul or USF&G name or
any derivative thereof (either alone or in combination with any other name)
in connection with the offer, issuance, sale or promotion of such
insurance; and the New Affiliate was engaged in the offer, issuance, sale
or promotion of personal lies insurance prior to the time of becoming a New
Affiliate. Neither Seller nor any of its Affiliates shall take any action
to promote any such business between any New Affiliate and any Personal
Lines Agent;
(iv) For a period of five (5) years following the Closing Date, neither
Buyer nor any of its Affiliates shall directly or indirectly offer, issue,
sell, refer or promote commercial property and casualty insurance through
any of the Personal Lines Agents, other than in the case of non-systematic
or accommodation exceptions.
Notwithstanding any other provision of this ss.6(h) to the contrary,
neither Seller nor its Affiliates shall be prohibited from making investments in
the Ordinary Course of Business in entities engaging in any lines of insurance
included within the SPPI Business.
This ss.6(h) shall not be binding upon an Affiliate of Seller after the
time such Person ceases to be an Affiliate of Seller. This ss.6(h) also shall
not be binding upon any Person which is not an Affiliate of Seller and which
acquires all or substantially all of the capital stock or assets of St. Paul
through merger, consolidation, tender offer, acquisition of assets or otherwise;
provided that St. Paul and its Affiliates shall not provide information with
respect to the Personal Lines Agents to such Person and such Person shall not
use the St. Paul or USF&G name or any derivative thereof (either alone or in
combination with any other name) in the offer, issuance, sale or promotion of
personal lines insurance which is the subject of the provisions of this ss.6(h).
(i) Agent Incentive Programs. Seller and Buyer shall use their reasonable
efforts to ensure that the agents for the SPPI Business are permitted to
continue to participate in the Seller's agent incentive programs (including,
without limitation, Seller's Top Brass Program, its Agents' Profit Sharing Plan,
its Peak Performers Program and its Sydney Olympics Program) with full credit
being provided to such agents under such programs for their continued sales of
personal lines policies until three years after the Closing Date. Buyer and
Seller agree that each will be responsible for its proportionate share of the
cost of such programs, based upon whether Seller or Buyer owned the SPPI
Business at the time the policies resulting in credits under the respective
incentive programs were issued. After three years the parties will negotiate in
good faith to jointly extend participation in these and/or similar programs for
an additional period of time.
7. CONDITIONS TO OBLIGATION TO CLOSE
(a) Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
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(i) the representations and warranties set forth in ss.3(a) and ss.4
above shall be true and correct as of the date of this Agreement and as of
the Closing Date with the same effect as though such representations and
warranties had been made as of the Closing Date (or such earlier date as
specified in the representations or warranties), except for such failures
to be true and correct as have not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse
Effect on the SPPI Business taken as a whole;
(ii) from the date of this Agreement to the Closing Date, no material
adverse change in the financial condition or business of the SPPI Business
taken as a whole shall have occurred and no event or development shall have
occurred that is reasonably likely to have a Material Adverse Effect on the
SPPI Business taken as a whole;
(iii) Seller shall have performed and complied with all of its
covenants, agreements, undertakings and obligations hereunder in all
material respects through the Closing;
(iv) there shall not be any injunction, judgment, order, decree,
ruling, action or suit in effect, pending or threatened in writing, of or
by any Government Entity that (A) seeks to prevent or prevents consummation
of, or modifies or seeks to modify in any material respect the carrying out
of, any of the transactions contemplated by the Transaction Documents, (B)
seeks or imposes material damages in connection with any of the
transactions contemplated by the Transaction Documents, (C) questions the
validity or legality of any of the transactions contemplated by the
Transaction Documents or (D) seeks to impose material conditions upon the
ownership or operation of any of the Economy Companies or the conduct of
the SPPI Business by Buyer or the operation of Buyer or any Affiliate of
Buyer in connection with the transactions contemplated by this Agreement or
the other Transaction Documents, and neither Party shall have received any
written request for postponement of the Closing from any Government Entity;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all required consents and approvals
from the insurance departments of the states having jurisdiction, including
but not limited to the States of Illinois, Minnesota, Rhode Island and New
York;
(vi) Seller shall have (A) executed and delivered, or caused its
Affiliates to execute and deliver, to Buyer each of the Transaction
Documents to which Seller or such Affiliates are a party and (B) delivered
to Buyer (x) a list of the SPPI Policies, on a computer disk or other
electronic form reasonably acceptable to Buyer, containing the same and (y)
a list of all presently licensed agents of Seller and its Affiliates who,
as of the Closing Date, sold the SPPI Policies;
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(vii) the closing under the Commutation Agreement with Economy shall
have occurred and Seller shall have transferred to Economy consideration as
set forth in the Commutation Agreement;
(viii) Seller shall have delivered to Buyer a certificate signed by a
senior executive officer of Seller to the effect that each of the
conditions specified above in ss.ss.7(a)(i), (ii), (iii), (iv), (v), (vi)
and (vii) is satisfied in all respects;
(ix) Seller shall have delivered to Buyer a certificate of the
secretary or assistant secretary of Seller and the other SPPI Affiliates,
dated as of the Closing Date, as to the resolutions of the Board of
Directors (or other similar governing body) of Seller or an SPPI Affiliate,
as the case may be, authorizing the execution, delivery and performance of
the Transaction Documents to which they are a party, as to the status and
signature of each of their officers who executed and delivered the
Transaction Documents to which they are a party and any other document
delivered by them in connection with the consummation of the transactions
contemplated by the Transaction Documents, and as to the Economy Companies,
a certificate of the secretary or assistant secretary of the Economy
Companies as to the Economy Companies' charters and by-laws (or equivalent
documents) (certified by the applicable Government Entity), and as to their
due organization, existence and good standing;
(x) all material consents of third parties (other than consents of
Government Entities) to the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained;
(xi) Seller shall have transferred to Buyer all permits and licenses
required to be transferred prior to the Closing by any Environmental Law;
and
(xii) Buyer shall have received written resignations of each of the
directors and officers of the Economy Companies in accordance with ss.2(c)
hereof.
Buyer may waive any condition specified in this ss.7(a) if it executes a writing
so stating at or prior to the Closing.
(b) Conditions to Obligation of Seller. The obligation of Seller to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b) above shall
be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date with the same effect as though such
representations and warranties had been made as of the Closing Date (or
such earlier date specified in such representation or warranty);
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(ii) Buyer shall have performed and complied with all of its covenants,
agreements, undertakings and obligations hereunder in all material respects
through the Closing Date;
(iii) there shall not be any injunction, judgment, order, decree,
ruling, action or suit in effect, pending or threatened in writing, of or
by any Government Entity that (A) seeks to prevent or prevents consummation
of, or modifies or seeks to modify in any material respect the carrying out
of, any of the transactions contemplated by the Transaction Documents, (B)
seeks or imposes material damages in connection with any of the
transactions contemplated by the Transaction Documents, (C) questions the
validity or legality of any of the transactions contemplated by the
Transaction Documents or (D) seeks to impose material conditions upon the
ownership or operation of Seller or any Affiliate of Seller in connection
with the transactions contemplated by this Agreement or the other
Transaction Documents, and neither Party shall have received any written
request for postponement of the Closing from any Government Entity;
(iv) Buyer shall have executed all of the Transaction Documents to
which it is a party;
(v) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all required consents and approvals for
the transactions contemplated herein from the insurance departments of the
relevant states, including but not limited to the States of Illinois,
Minnesota, Rhode Island and New York;
(vi) Buyer shall have delivered to a Seller a certificate of the
secretary or assistant secretary of the Buyer, dated as of the Closing
Date, as to the resolutions of the Board of Directors (or other similar
governing body) of Buyer, authorizing the execution, delivery and
performance of the Transaction Documents to which Buyer is a party, as to
the status and signature of each of its officers who executed and delivered
such Transaction Documents and any other document delivered by it in
connection with the consummation of the transactions contemplated by the
Transaction Documents, and as to its due organization, existence and good
standing;
(vii) Buyer shall have delivered to a Seller a certificate signed by a
senior executive officer of Buyer to the effect that each of the conditions
specified above in ss.ss.7(b)(i), (ii), (iii), (iv) and (v) is satisfied in
all respects; and
(viii) all material consents of third parties (other than consents of
Government Entities) to the transactions contemplated by this Agreement and
the other Transaction Documents shall have been obtained.
Seller may waive any condition specified in this ss.7(b) if it executes a
writing so stating at or prior to the Closing.
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8. REMEDIES FOR BREACHES OF THIS AGREEMENT AND INDEMNITY
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Parties contained in ss.ss.3 and 4 shall survive the
Closing hereunder and continue in full force and effect for a period of two
years thereafter, except (i) that the representations and warranties contained
in ss.4(h) shall survive the Closing and continue in full force and effect until
a period of six (6) months after the expiration of all relevant statutes of
limitations (giving effect to any waiver, mitigation or extension thereof), (ii)
the representations and warranties contained in ss.3(a)(v), ss.4(c)(i),
ss.4(c)(ii)(B) and ss.4(d) shall survive without limitation, and (iii) any claim
based on fraud or bad faith may be asserted at any time within one year after
the party asserting such claim or claim learns of the same.
(b) Indemnification Provisions for Benefit of Buyer.
(i) Subject to the limitations set forth in this ss.8, (A) in the event
Seller breaches any of its representations and warranties contained herein,
and, if there is an applicable survival period pursuant to ss.8(a) above,
provided that Buyer makes a written claim for indemnification against
Seller within such survival period, (B) in the event that any SPPI
Transferred Employee makes a claim, subsequent to the Closing Date, against
Buyer or any of its Affiliates, related to such SPPI Transferred Employee's
transfer from an SPPI Entity to one of the Economy Companies (other than as
otherwise covered by this Agreement, including any claim for severance
arising from post-Closing events, for which Buyer shall be solely
responsible), provided that Buyer makes a written claim for indemnification
against Seller, or (C) in the event that there is a claim against Buyer or
any of its Affiliates relating to the transfer of the non-SPPI Business
from the Economy Companies to an Affiliate of Seller that is not otherwise
covered by the Seller Reinsurance Agreement, provided that Buyer makes a
written claim for indemnification against Seller, then Seller shall
indemnify and hold harmless Buyer (and its respective directors, officers,
Affiliates, successors and assigns) (each, a "Buyer Indemnitee") from and
against any Adverse Consequences a Buyer Indemnitee shall suffer which
arise out of or are related to such breach or claim; provided, however,
that Seller shall not have any liability under this ss.8(b) unless a Buyer
Indemnitee has suffered Adverse Consequences, by reason of the breach of
any representation or warranty of Seller, that in the aggregate are in
excess of $12.6 million, and then only to the extent of any such excess;
provided, further, however, that Seller shall not have any liability under
this ss.8(b) for any individual items where the Adverse Consequences
relating thereto are less than $50,000, and such items shall not be
aggregated for purposes of the immediately preceding proviso; and provided,
further, however, that in any event, the maximum amount for which Seller
shall be liable under this ss.8(b) shall not exceed $236,250,000; provided,
nevertheless, that the limitations contained in the foregoing three
provisos shall not apply to liability by reason of any claim referred to in
clause (B) or clause (C) of this subsection (b)(i) or by reason of any
breach of the representations or warranties contained in ss.3(a)(v),
ss.4(c)(i), ss.4(c)(ii)(B) or ss.4(d). Notwithstanding the foregoing,
remedies for
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breaches of representations and warranties contained in ss.4(h) shall be
limited to indemnification under ss.6(e).
(ii) Notwithstanding anything to the contrary set forth in this
Agreement, in no event shall Buyer be entitled to indemnification under any
representation or warranty of Seller in ss.3(a) and ss.4 of this Agreement
for any Adverse Consequences to the extent such Adverse Consequences will,
under the terms of the Reserve Agreement, be included in the Final
Companies Reserves (as defined in the Reserve Agreement).
(c) Indemnification Provisions for Benefit of Seller.
(i) Subject to the limitations set forth in ss.8(c)(ii), in the event
Buyer breaches any of its representations or warranties in ss.3(b) above,
then Buyer agrees to indemnify and hold harmless Seller and its
subsidiaries (and their respective directors, officers, Affiliates,
successors and assigns) (each, a "Seller Indemnitee") from and against the
entirety of any Adverse Consequences a Seller Indemnitee shall suffer which
arise out of or are related to the breach.
(ii) In the event Buyer breaches any of its representations and
warranties contained herein, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that Seller makes a written claim for
indemnification against Buyer within such survival period, then Buyer shall
indemnify and hold harmless any Seller Indemnitee from and against any
Adverse Consequences such Seller Indemnitee shall suffer which arise out of
or are related to such breach; provided, however, that Buyer shall not have
any liability under this ss.8(c) unless such Seller Indemnitee has suffered
Adverse Consequences, by reason of the breach of any representation or
warranty of Buyer, that in the aggregate are in excess of $12.6 million,
and then only to the extent of any such excess; provided, further, however,
that Buyer shall not have any liability under this ss.8(c) for any
individual items where the Adverse Consequences relating thereto is less
than $50,000, and such items shall not be aggregated for purposes of the
immediately preceding proviso; and provided, further, however, that in any
event, the maximum amount for which Buyer shall be liable under this
ss.8(c) shall not exceed $236,250,000; provided, nevertheless, that the
limitations contained in the foregoing three provisos shall not apply to
liability by reason of any breach of the representations or warranties
contained in ss.3(b)(v) or ss.3(b)(vii).
(d) Matters Involving Third Parties.
(i) If any third party shall notify a Party (the "Indemnified Party")
with respect to any matter (a "Third Party Claim") which may give rise to a
claim for indemnification against the other Party (the "Indemnifying
Party") under this ss.8, then the Indemnified Party shall promptly (and in
any event within five Business Days after receiving notice of the Third
Party Claim) notify the Indemnifying Party thereof in writing; provided,
however, that failure to provide such notice on a timely basis shall not
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release the Indemnifying Party from any of its obligations under this ss.8
except to the extent the Indemnifying Party is actually prejudiced by such
failure (except that the Indemnifying Party shall not be liable for any
expenses incurred during the period in which the Indemnified Party failed
to give such notice). Thereafter, the Indemnified Party shall deliver to
the Indemnifying Party, within five Business Days after the Indemnified
Party's receipt thereof, copies of all notices and documents (including
court papers) received by the Indemnified Party relating to the Third Party
Claim.
(ii) The Indemnifying Party will have the right at any time to assume
and thereafter conduct the defense of the Third Party Claim with counsel of
its choice (who shall also be reasonably satisfactory to the Indemnified
Party); provided, however, that the Indemnifying Party will not consent to
the entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnified
Party (not to be unreasonably withheld or delayed), unless the judgment or
proposed settlement (x) involves only the payment of money damages against
which the Indemnified Party is indemnified by the Indemnifying Party, (y)
does not impose an injunction or other equitable relief upon the
Indemnified Party and (z) does not involve a finding or admission of any
violation of Law or other wrongdoing by the Indemnified Party. Should the
Indemnifying Party elect to assume the defense of a Third Party Claim, the
Indemnifying Party will not be liable to the Indemnified Party for legal
expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof. Unless and until an Indemnifying Party assumes the
defense of the Third Party Claim, the Indemnified Party may defend against
the Third Party Claim in any manner it reasonably may deem appropriate and
the Indemnifying Party shall be bound by any final determination with
respect to such Third Party Claim prior to such assumption, provided that
the Indemnified Party has defended against such Third Party Claim in a
reasonable manner; provided, however, that the Indemnified Party may not
agree to any settlement without the consent of the Indemnifying Party,
which consent will not be unreasonably withheld or delayed.
(iii) Notwithstanding clause (ii) above, if an Indemnified Party
determines in good faith that there is a reasonable probability that a
Third Party Claim will create adverse legal precedent or materially affect
the ongoing business operations or ongoing business relationships of the
Indemnified Party or its Affiliates, then the Indemnified Party will have
the right to conduct the defense of the Third Party Claim with counsel of
its choice (who shall be reasonably satisfactory to the Indemnifying
Party); provided that the Indemnifying Party shall have the right to
monitor the defense of such Third Party Claim and participate in the
defense thereof at its own expense. The Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect to
such Third Party Claim without the prior written consent of the
Indemnifying Party, not to be unreasonably withheld or delayed.
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(iv) In no event will an Indemnified Party consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not to be
withheld unreasonably or delayed).
(e) Mitigation. In the event that a Party suffers damage or loss in respect
of which it has or makes a valid claim against the other Party for
indemnification, it must take reasonable steps to mitigate its loss or damage.
(f) Determination of Adverse Consequences. The Parties shall make
appropriate adjustments for tax benefits and expenses in determining Adverse
Consequences for purposes of this ss.8. All indemnification payments under this
ss.8 shall be deemed adjustments to the Aggregate Purchase Price.
(g) Exclusive Remedy. The Parties hereby acknowledge and agree that their
respective sole and exclusive remedy with respect to any and all claims for
breach of a representation or warranty contained in this Agreement (except for
fraud or bad faith and claims relating to Taxes) against the other Party and its
Affiliates shall be pursuant to the indemni fication provisions contained in
this ss.8. Notwithstanding the indemnification provisions contained in this
ss.8, each Party shall have the right to pursue remedies against the other
outside of this ss.8 to enforce covenants, agreements, undertakings and
obligations contained in this Agreement.
9. TERMINATION
(a) Termination of Agreement. The Parties may terminate this Agreement as
provided below:
(i) Buyer and Seller may terminate this Agreement by mutual written
consent at any time prior to the Closing.
(ii) Buyer may terminate this Agreement by giving written notice to
Seller at any time prior to the Closing (A) in the event a Seller has
breached any material representation, warranty, or covenant contained in
this Agreement or any other Transaction Document in any material respect,
that would cause a condition to Closing to be incapable of satisfaction,
Buyer has notified Seller of the breach, and the breach has continued
without cure for a period of 30 days after the notice of breach or (B) if
the Closing shall not have occurred on or before February 28, 2000, by
reason of the failure of any condition precedent under ss.7(a) hereof
(unless the failure results from Buyer itself breaching its obligations
under this Agreement).
(iii) Seller may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing (A) in the event Buyer has breached
any material representation, warranty, or covenant contained in this
Agreement or any Transaction Document in any material respect, that would
cause a condition to Closing to be
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incapable of satisfaction, Seller has notified Buyer of the breach, and the
breach has continued without cure for a period of 30 days after the notice
of breach or (B) if the Closing shall not have occurred on or before
February 28, 2000, by reason of the failure of any condition precedent
under ss.7(b) hereof (unless the failure results from Seller breaching its
obligations under this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to ss.9(a) above, all rights and obligations of the Parties hereunder shall
become null and void and terminate without any liability of any Party to any
other Party; provided, however, that (i) the confidentiality provisions
contained in ss.5(d) and ss.6(a), the governing law provisions contained in
ss.10(h), the submission to jurisdiction provisions contained in ss.10(i) and
the expense provisions contained in ss.10(l) shall survive termination and (ii)
nothing herein shall relieve any Party from liability for any direct or
indirect, special or consequential damages resulting from any breach of this
Agreement.
10. MISCELLANEOUS
(a) Press Releases and Public Announcements. Neither Party shall issue any
press release or make any written public announcement relating to the subject
matter of this Agreement prior to the Closing Date without the prior review and
approval of the other Party; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable Law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to consult with
the other Party before making the disclosure and to allow the other Party to
review the text of the disclosure before it is made).
(b) No Third Party Beneficiaries. Nothing in this Agreement is intended or
shall be construed to confer any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision contained herein upon any
Person other than the Parties and their respective successors and permitted
assigns.
(c) Entire Agreement. This Agreement (including the Seller Disclosure
Schedule, the Buyer Disclosure Schedule, Schedules and Exhibits hereto and the
other agreements and written understandings referred to herein or otherwise
entered into by the Parties on the date hereof) and the Confidentiality
Agreement constitute the entire agreement and understanding among the Parties
and supersede any prior understandings, agreements, statements of intent or
representations by or among the Parties, written or oral, with respect to the
subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Neither Party may assign either this Agreement or any of
its rights, interests, or obligations hereunder without the prior written
approval of the other, except that Buyer may assign its interest hereunder
without the consent of Seller to any wholly owned subsidiary of Buyer;
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provided, however, that no such transfer shall operate to release Buyer of any
of its obligations under this Agreement or any Transaction Document.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, consents, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
consent, or other communication hereunder shall be addressed to the intended
recipient as set forth below:
If to Seller:
The St. Paul Companies, Inc.
385 Washington Street
St. Paul, Minnesota 55102
Attn.: General Counsel
With a concurrent copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attn.: Donald R. Crawshaw, Esq.
If to Buyer:
Metropolitan Property & Casualty Insurance Company
700 Quaker Lane
Warwick, Rhode Island 02887
Attn.: Mr. John Lombardo
With concurrent copies to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010-3690
Attn: Robert Einstein, Esq.
Dewey Ballantine LLP
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1301 Avenue of the Americas
New York, New York 10019
Attn: James A. FitzPatrick, Jr., Esq.
Any Party may send any notice, request, demand, claim, consent, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, consent, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR
ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(i) SUBMISSION TO JURISDICTION. EACH PARTY CONSENTS TO THE NON-EXCLUSIVE
JURISDICTION OF THE FEDERAL COURTS OF THE SOUTHERN DISTRICT OF NEW YORK FOR ANY
LEGAL ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT. EACH PARTY FURTHER WAIVES ANY OBJECTION TO THE LAYING OF VENUE FOR
ANY SUCH SUIT, ACTION, OR PROCEEDING IN SUCH COURTS. EACH PARTY AGREES TO ACCEPT
AND ACKNOWLEDGE SERVICE OF ANY AND ALL PROCESS THAT MAY BE SERVED IN ANY SUIT,
ACTION, OR PROCEEDING. EACH PARTY AGREES THAT ANY SERVICE OF PROCESS UPON IT
MAILED BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED TO SUCH PARTY
AT THE ADDRESS PROVIDED IN ss.10(G) ABOVE SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON SUCH PARTY IN ANY SUCH SUIT, ACTION, OR
PROCEEDING. EACH PARTY HERETO HEREBY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR
RELATING TO THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY.
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, (II) EACH SUCH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF
THIS WAIVER, (III) EACH SUCH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH
SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS,
THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SS.10(I).
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(j) Amendments and Waivers. No amendment, modification, superseding or
waiver of any provision, term, covenant or condition of this Agreement shall be
valid unless the same shall be in writing and signed by Buyer and Seller or, in
the case of a waiver, by the Party waiving compliance. No waiver by any Party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
(l) Expenses. Except as otherwise expressly provided herein, whether or not
the transactions contemplated herein are consummated, Seller and Buyer will bear
its own costs and expenses (including legal fees and expenses) incurred in
connection with the negotiation, preparation, execution and closing of this
Agreement and the transactions contemplated hereby.
(m) Incorporation of Exhibits, Annexes and Schedules. The Exhibits,
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(n) Gender and Number. All words or terms used in this Agreement,
regardless of the number or gender in which they are used, shall be deemed to
include any other number and any other gender as the context may require.
"Hereof", "herein", and "hereunder" and words of similar import shall be
construed to refer to this Agreement as a whole, and not to any particular
section or provision, unless expressly so stated.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
ST. PAUL FIRE AND MARINE INSURANCE
COMPANY
/s/ Paul J. Liska
By:-------------------
Name: Paul J. Liska
Title: Executive Vice President and
Chief Financial Officer
METROPOLITAN PROPERTY & CASUALTY
INSURANCE COMPANY
/s/ Catherine A. Rein
By:-----------------------
Name: Catherine A. Rein
Title: President and Chief Executive
Officer
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Exhibit A-1
-----------
SELLER REINSURANCE AND FACILITY AGREEMENT
This REINSURANCE AND FACILITY AGREEMENT is effective as of _________,
1999 and entered into by ECONOMY FIRE & CASUALTY COMPANY, an Illinois stock
property-casualty insurance corporation (the "Company") and ST. PAUL FIRE AND
MARINE INSURANCE COMPANY, a Minnesota insurance corporation and the parent of
the Company (the "Reinsurer");
WHEREAS, pursuant to the terms and conditions of a Stock and Asset
Purchase Agreement dated as of July 12, 1999 (as such agreement may have been,
or may from time to time be, amended, supplemented or otherwise modified, the
"Purchase Agreement"), the Reinsurer has agreed to sell to Metropolitan Property
& Casualty Reinsurance Company ("Buyer") all of its SPPI Business (capitalized
terms used but not defined herein have the respective meanings assigned thereto
in the Purchase Agreement);
WHEREAS, pursuant to the Purchase Agreement, the Reinsurer has agreed
to sell, and Buyer has agreed to purchase, all of the outstanding common stock
of the Company, which in turn is the parent of two wholly-owned subsidiaries,
Economy Preferred Insurance Company, an Illinois insurance corporation, and
Economy Premier Assurance Company, an Illinois insurance corporation;
WHEREAS, in order to effectuate the foregoing, the Reinsurer has agreed
to assume from the Company and to cause the Company to cede to the Reinsurer,
all liabilities of the Company under policies other than the SPPI Policies, and
the Company has agreed to issue renewals of such policies and to write, at the
Reinsurer's request, new policies to the extent contemplated hereby;
NOW, THEREFORE, in consideration of the mutual covenants and promises
and upon the terms and conditions set forth herein, the parties hereto agree as
follows:
ARTICLE I - CLASSES OF BUSINESS REINSURED; RETENTION AND LIMIT
A. The Company obligates itself to cede to the Reinsurer, and the Reinsurer
obligates itself to assume, quota share reinsurance of one hundred percent
(100%) of the Net Liability (as defined in Article I.B) of the Company with
respect to all business, other than the Company's SPPI Business, written,
reinsured or assumed by the Company or its subsidiaries under policies,
contracts and binders of insurance and reinsurance issued prior to the
Effective Time, and all renewals for such policies, contracts and binders
of insurance and all policies written by the Company or its subsidiaries in
connection with such business after the Effective Time at the request of
the Reinsurer as contemplated hereby (collectively, the "Non-SPPI
Policies").
The Reinsurer shall assume and be responsible for one hundred percent
(100%) of the Net Liability.
B. "Net Liability" as used herein is defined as the Company's gross liability
for all losses, liabilities and expenses under the Non-SPPI Policies, net
of all reinsurance actually recovered under reinsurance agreements with
reinsurers that are not Affiliates of the Reinsurer in effect prior to the
Effective Time.
C. The liability of the Reinsurer with respect to each cession hereunder,
including the obligation to service and issue the Non-SPPI Policies, shall
commence obligatorily and simultaneously with the obligation of the Company
undertaken herein, subject to the terms, conditions and limitations
hereinafter set forth.
D. Notwithstanding anything in this Agreement to the contrary, and
notwithstanding the Reinsurer's intention to fully perform hereunder, in
the event that the Reinsurer shall breach or be in default with respect to
any of its obligations hereunder, the Company shall remain obligated and
liable under the Non-SPPI Policies without diminution as a result of such
breach or default.
ARTICLE II - COMMENCEMENT AND DURATION
A. This contract shall become effective at 12:01 A.M. New York time on
___________, 1999 (the "Effective Time").
B. Reinsurance hereunder shall remain in full force and effect until
expiration or cancellation of all of the Company's Net Liability.
ARTICLE III - EXCLUSIONS
Reinsurance hereunder shall attach only and solely with respect to the Non-SPPI
Policies, and only and solely to the extent described in Article I hereof. No
reinsurance shall attach with respect to any other policies, contracts and/or
binders of insurance or reinsurance of any kind or type whatsoever issued and/or
assumed by the Company, all of which hereby are excluded completely hereunder.
ARTICLE IV - EXTRA CONTRACTUAL OBLIGATIONS
In the event the Company or the Reinsurer is held liable to pay any punitive,
exemplary, compensatory or consequential damages because of alleged or actual
bad faith or negligence related to the handling of any claim under any Non-SPPI
Policy or otherwise in respect of such Non-SPPI Policy, the parties shall be
liable for such damages in proportion to their responsibility for the conduct
giving rise to the damages. Such determination shall be made by the Company and
the Reinsurer, acting jointly and in good faith, and in the event the parties
are unable to reach agreement as to such determination, recourse shall be had to
Article XV hereof.
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ARTICLE V - TRANSFER OF RESPONSIBILITY; FEES
A. After the Effective Time, the Reinsurer shall assume full responsibility
for servicing and other actions relating to the Non-SPPI Policies,
including but not limited to all policy changes, policy issuance, premium
rate changes, agent commission payments, premium collection, underwriting,
claims and loss adjustment functions.
1. Each party shall use its reasonable efforts to promptly forward to the
other party all telephone messages, correspondence and other
communications related to any loss or liability as to which such other
party has responsibility hereunder.
2. Commencing at the Effective Time, the Reinsurer is authorized to bill
and collect all premiums and other charges related to the Non-SPPI
Policies. In the event that either the Company or the Reinsurer shall
collect premiums or other charges which belong to the other party
hereunder, the collecting party shall remit the premiums and other
charges so collected to the appropriate party, together with a report
showing the policies to which the premiums and charges relate, on a
monthly basis, no later than the thirtieth (30th) day after the close
of each calendar month hereunder.
3. The Company shall deliver to the Reinsurer, on or before the Effective
Time, copies in its possession of any and all of its or its
subsidiaries' documents, data and information (including but not
limited to policy forms, expiration files, customer account records and
underwriting, claims and processing materials, and any correspondence
or other communications related thereto), whether in written or
computer form, which are necessary, appropriate or desirable for the
Reinsurer to perform its claims handling and underwriting functions
with respect to the Non-SPPI Policies and shall transfer to the
Reinsurer title to all such materials in the possession of the
Reinsurer. The Company may retain copies of such materials as
reasonably necessary. Any such delivery shall be made to the Reinsurer
at actual cost to the Company or its subsidiaries. "Actual cost" shall
consist of the Company's or such subsidiary's direct and reasonable
indirect costs, including any capital, start-up, restructuring,
reprogramming or similar costs of the Company and its subsidiaries
incremental to the costs associated with maintaining such documents,
data and information prior to the Effective Time, as certified in good
faith by the Company.
4. The Company shall not underwrite any applications or renewals occurring
on or after the Effective Time, and the Company shall not adjust or pay
any claims as to which the Reinsurer has assumed liability hereunder.
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5. The Company shall permit the Reinsurer to place one or more of its
employees on-site at the Company, and the Company shall give these
employees access to all of the personnel and records of the Company,
and necessary support related thereto, to enable the Reinsurer to
effect all claims handling, underwriting responsibilities and other
insurance-related services with respect to the reinsured business. The
Company shall have the right to review the qualifications and
experience of Reinsurer's employees prior to providing them with access
to the Company's facilities, systems and policy and claim information.
The Reinsurer and its employees agree that the employees will have
access to the Company's systems, facilities and policy and claim
information and are limited to using such systems, facilities and
information solely and exclusively for the purposes of underwriting
Non-SPPI Policies, adjusting claims for the Non-SPPI Policies,
complying with applicable laws, regulations and requirements of
governmental authorities and otherwise exercising its rights and
fulfilling its obligations hereunder. The Reinsurer and its employees
also agree that the employees shall not attempt to gain access to
underwriting or claim files for policies other than the Non-SPPI
Policies subject to this Agreement. Any information that is not related
to the Non-SPPI Policies shall be considered Confidential Information
and proprietary and the Reinsurer and its employees agree not to use
such information for any purpose and not to disclose the information to
any third parties.
B. Subject to Articles I, III and V hereunder, all losses sustained by the
Company shall be binding upon the Reinsurer, and the Reinsurer agrees to
pay or allow, as the case may be, its proportion of each such settlement
with notification to the Company on forms mutually acceptable to the
parties hereto.
C. The Reinsurer or an affiliate thereof promptly shall make all necessary
policy form, rate and rule filings, if any, to enable it or such affiliate
to issue new policies and/or policy renewals subsequent to the Effective
Time. The Company shall cooperate with and assist the Reinsurer or such
affiliate with respect to such filings, including the attendance at
meetings between the Reinsurer or such affiliate and state insurance
departments upon the request of the Reinsurer or such affiliate. Until such
time as the Reinsurer or such affiliate receives the required approvals,
the Company agrees to issue renewals for existing Non-SPPI Policies and to
issue new Non-SPPI Policies; provided, however, that, after the third
anniversary of the Effective Time, the Company shall in no event be
required to issue renewals for existing Non-SPPI Policies or issue new
Non-SPPI Policies. At such time as the Reinsurer's or such affiliate's
filings are approved, the Reinsurer or such affiliate shall convert each of
the Non-SPPI Policies from the Company's forms, rates and rules to the
Reinsurer's or such affiliate's forms, rates and rules under a process that
complies with the statutes and regulations of the state in which the holder
of each policy is domiciled.
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ARTICLE VI - SALVAGE AND SUBROGATION
A party to this agreement (Reinsurer or the Company) shall be credited with its
proportionate share of salvage (i.e., reimbursement obtained or recovery made by
the other party, less the actual cost, excluding salaries of officials and
employees of the Company or the Reinsurer and sums paid to attorneys as
retainer, of obtaining such reimbursement or making such recovery) on account of
claims and settlements involving reinsurance hereunder.
ARTICLE VII - ORIGINAL CONDITIONS
A. All reinsurance hereunder shall be subject to the same rates, terms,
conditions, waivers and interpretations and to the same modifications and
alterations as the respective Non-SPPI Policies of the Company. However, in
no event shall this be construed in any way to provide coverage outside the
terms and conditions set forth in this contract. The Reinsurer shall be
credited with its exact proportion of the original premiums received by the
Company with respect to the Non-SPPI Policies.
B. Nothing herein shall in any manner create any obligations or establish any
rights against the Reinsurer or the Company in favor of any third party or
any persons not parties to this contract.
ARTICLE VIII - PREMIUM, CEDING COMMISSION AND ALLOWANCES
A. Subject to the payment to the Company of ceding commissions and allowances
and other amounts provided for herein, the Company cedes to the Reinsurer
one hundred percent (100%) of all premiums received in respect of the
Non-SPPI Policies for periods following the Effective Time. The Company
shall deduct from such premiums ceded to the Reinsurer all reinsurance
premiums paid by the Company with respect to reinsurance in effect prior to
the Effective Time.
B. At the Effective Time, the Company shall transfer to the Reinsurer cash or
cash equivalents in an amount equal to one hundred percent (100%) of loss
reserves, allocated loss adjustment expense reserves, unallocated loss
adjustment expense reserves and unearned premium reserves established by
the Company, in accordance with SAP applied on a basis consistent with past
practices, as of the Effective Time with respect to the Non-SPPI Policies.
C. No ceding commission shall be paid by the Reinsurer to the Company with
respect to Non-SPPI Policies in force as of the Effective Time; provided,
however, that the Reinsurer shall pay a ceding commission to the Company
for all renewal and new Non-SPPI Policies issued by the Company at the
Reinsurer's request after the Effective Time equal to one hundred percent
(100%) of all costs and expenses incurred by the Company in issuing,
renewing, writing and servicing such policies, including but not limited
to, all agents' commissions, state and local premium taxes,
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guaranty fund premiums and assessments, administrative and overhead
charges, direct and indirect servicing fees and expenses and other
out-of-pocket costs and expenses. After the end of each month hereunder,
the Company shall issue a statement for services rendered to the Reinsurer,
containing such information as the Reinsurer may reasonably request, and
payment shall be made by the Reinsurer within fifteen (15) days of its
receipt of the statement.
ARTICLE IX - REPORTS AND REMITTANCES
A. After the end of each month, the Reinsurer shall report the following for
the Non-SPPI Policies as applicable, in a form reasonably acceptable to the
Company:
1. Gross written premium for the month.
2. Ceded paid loss for the month.
3. Ceded paid loss adjustment expense for the month.
4. Unearned premium reserve as of the end of the month.
5. Outstanding loss and loss adjustment expense reserves as of the end of
the month.
6. All ceding commissions and expense allowances due and owing under
Article VIII hereof.
7. Reinsurance premiums paid by the Company with respect to reinsurance in
effect prior to the Effective Time, if any.
8. Recoveries from reinsurers under reinsurance agreements in effect prior
to the Effective Time, if any.
Payment of amounts, if any, due to the Company shall accompany this report. If
the report indicates that the Company owes amounts to the Reinsurer, the Company
shall pay the amount shown no later than fifteen (15) days after its receipt of
the report.
B. The Company and the Reinsurer shall furnish, in a timely manner, one
another with such information as they may require to complete their
quarterly and annual statutory reports.
ARTICLE X - CREDIT FOR REINSURANCE
If the Company is not permitted, by any jurisdiction in the United States, in
the statements required to be filed with its regulatory authority, to receive
full credit as admitted reinsurance
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for the Reinsurer's assumption of liability under this Agreement, the Reinsurer
shall promptly provide to the Company, in a form reasonably acceptable to the
Company, security sufficient to permit the Company to take full credit for
reinsurance under this Agreement.
ARTICLE XI - OFFSET
Provided in each instance that written notice is given in a timely fashion,
specifying in detail the basis therefor, (a) the Reinsurer may deduct from any
sums it owes to the Company hereunder, any sums it is owed by the Company,
pursuant to this Agreement, and (b) the Company may deduct from any sums it owes
to the Reinsurer hereunder, any sums it is owed by the Reinsurer, pursuant to
this Agreement.
ARTICLE XII - ACCESS TO RECORDS
The Reinsurer, the Company and their designated representatives shall have
access during normal business hours to all records in the possession of the
other party to this Agreement which pertain in any way to this reinsurance, in a
manner so as not to unreasonably interfere with the normal business operations
of such party. Subject to the foregoing, the Reinsurer and the Company shall
have the right to audit the relevant books and records of the other party
pursuant to the auditing party's normal audit procedures. Each party shall, and
shall cause its designated representatives to, treat and hold as Confidential
Information any information it receives or obtains pursuant to this Article XII.
ARTICLE XIII - ERRORS AND OMISSIONS
Inadvertent delays, errors or omissions made in connection with this contract or
any transaction hereunder shall not relieve either party from any liability
which would have attached had such delay, error or omission not occurred,
provided always that such error or omission is rectified as soon as possible
after discovery.
ARTICLE XIV - INSOLVENCY
A. In the event of the insolvency of the Company, this reinsurance shall be
payable directly to the Company or to its liquidator, receiver, conservator
or statutory successor immediately upon demand, subject to responsible
provision for verification on the basis of the liability of the Company,
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator or statutory successor of the Company has
failed to pay all or a portion of any claim. It is agreed, however, that
the liquidator, receiver, conservator or statutory successor of the Company
shall give written notice to the Reinsurer of the pendency of a claim
against the Company, indicating the policy or bond reinsured, within a
reasonable time after such claim is filed in the conservation or
liquidation proceeding or in the receivership, and that during the pendency
of such claim, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceeding where
-7-
such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to the approval of the Court, against the Company as
part of the expense of conservation or liquidation to the extent of a pro
rata share of the benefit which may accrue to the Company solely as a
result of the defense undertaken by the Reinsurer.
B. Where two or more reinsurers are involved in the same claim and a majority
in interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this contract as though such
expense had been incurred by the Company.
C. It is further understood and agreed that, in the event of the insolvency of
the Company, the reinsurance under this contract shall be payable directly
by the Reinsurer to the Company or to its liquidator, receiver or statutory
successor, except (1) where this contract specifically provides another
payee of such reinsurance in the event of the insolvency of the Company or
(2) where the Reinsurer with the consent of the direct insured or insureds
has assumed such policy obligations of the Company as direct obligations of
the Reinsurer to such payees.
D. Should the Company or the Reinsurer go into liquidation or should a
receiver be appointed, all amounts due either the Company or the Reinsurer
whether by reason of premiums, losses, or otherwise under this contract,
shall be subject to the right of offset at any time and from time to time,
and upon the exercise of the same, only the net balance shall be due.
ARTICLE XV - ARBITRATION
A. In the event of any dispute or difference of opinion hereafter arising with
respect to this contract, it is hereby mutually agreed that such dispute or
difference of opinion may be submitted to arbitration. One Arbiter shall be
chosen by the Company, the other by the Reinsurer, and an Umpire shall be
chosen by the two Arbiters before they enter upon arbitration, all of whom
shall be active or retired disinterested executive officers of insurance or
reinsurance companies or Lloyd's of London Underwriters. In the event that
either party should fail to choose an Arbiter within 15 days following a
written request by the other party to do so, the requesting party may
choose two Arbiters who shall in turn choose an Umpire before entering upon
arbitration. If the two Arbiters fail to agree upon the selection of an
Umpire within 15 days following their appointment, the Umpire shall be
chosen by the American Arbitration Association.
B. Each party shall present its case to the Arbiters within 60 days following
the date of appointment of the Umpire, unless the parties mutually agree to
an extension of time. The decision of the Arbiters shall be final and
binding on both parties; but failing to
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agree, they shall call in the Umpire and the decision of the majority shall
be final and binding upon both parties. Judgment upon the final decision of
the Arbiters may be entered in any court of competent jurisdiction.
C. Each party shall bear the expense of its own Arbiter, and shall jointly and
equally bear with the other the expense of the Umpire and of the
arbitration. In the event that the two Arbiters are chosen by one party, as
above provided, the expense of the Arbiters, the Umpire and the arbitration
shall be equally divided between the two parties.
D. Any arbitration proceedings shall take place at a location mutually agreed
upon by the parties to this contract, or, if they cannot agree, in the City
of New York but notwithstanding the location of the arbitration, all
proceedings pursuant hereto shall be governed by the laws of the State of
New York without giving effect to any choice or conflict of laws provision
or rule (whether of the State of New York or any other jurisdiction) that
would cause the application of the laws of any jurisdiction other than the
State of New York.
E. Arbitration shall not be a condition precedent to any right of action
hereunder.
ARTICLE XVI - ASSIGNMENT
Neither the Company nor the Reinsurer may assign any of its rights or
obligations under this Agreement without the express written consent of the
other; provided, however, that any party may assign any rights, interests or
obligations hereunder to any of its Affiliates without the prior written consent
of other parties; and provided, further, that in the event of any such
assignment the assignor shall remain liable with respect to its obligations
hereunder.
ARTICLE XVII - APPLICABLE LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISION OR
RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD
CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF
NEW YORK.
ARTICLE XVIII - INDEMNIFICATION
Each party hereto shall indemnify, defend and hold the other party harmless from
and against all loss, liability and expense arising out of any failure of the
indemnifying party to properly perform its obligations under this Agreement.
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ARTICLE XIX - EQUITABLE RELIEF
Each party hereto acknowledges that if it or its employees violate the terms of
this Agreement, the other party will not have an adequate remedy at law. In the
event of such a violation, the other party shall have the right, in addition to
any other rights that may be available to it, to obtain in any court of
competent jurisdiction injunctive relief to restrain any such violation and to
compel specific performance of the provisions of this Agreement. The seeking or
obtaining of such injunctive relief shall not foreclose or limit in any way
relief against either party hereto for any monetary damage arising out of such
violation.
ARTICLE XX - NOTICES
All notices, requests, demands, claims, consents, and other communications
hereunder will be in writing. Any notice, request, demand, claim, consent, or
other communication hereunder shall be addressed to the intended recipient as
set forth below:
If to the Company:
Metropolitan Property & Casualty Insurance Company
700 Quaker Lane
Warwick, Rhode Island 02887
Attn.: Mr. John Lombardo
With concurrent copies to:
Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010-3690
Attn.: Robert Einstein, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Attn.: James A. FitzPatrick, Jr., Esq.
If to the Reinsurer:
St. Paul Fire and Marine Insurance Company
c/o The St. Paul Companies, Inc.
385 Washington Street
St. Paul, Minnesota 55102
Attn.: General Counsel
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With a concurrent copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attn.: Donald R. Crawshaw, Esq.
Any party hereto may send any notice, request, demand, claim, consent, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, consent, or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Any party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other parties notice in the manner herein set forth.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
ST. PAUL FIRE AND MARINE INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
ECONOMY FIRE & CASUALTY COMPANY
By:
-----------------------------------
Name:
Title:
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LIST OF OMITTED EXHIBITS*
Exhibit No. Description
- ----------- -------------
1. Form of Seller Reinsurance and Facility Agreement (Exhibit A-1 to
Purchase Agreement)
2. Form of Seller Bill of Sale and Assignment (SPPI Assets) (Exhibit B-1
to Purchase Agreement)
3. Form of Buyer Bill of Sale and Assignment (Non-SPPI Assets) (Exhibit B-
2 to Purchase Agreement)
4. Form of Assumption of Liabilities agreement (Transferred Liabilities)
(Exhibit C to Purchase Agreement)
5. Form of Commutation Agreement (Exhibit D to Purchase Agreement)
6. Form of Master Services Agreement (Exhibit E-1 to Purchase Agreement)
7. Form of Buyer Services Agreement (Exhibit E-2 to Purchase Agreement)
8. Form of Reserve Agreement (Exhibit F to Purchase Agreement)
9. Specified Employees (Exhibit G to Purchase Agreement)
10. Valuation Firms (Exhibit H to Purchase Agreement)
11. Forms of agency agreements (Exhibit I to Purchase Agreement)
12. SPPI Entities (Schedule I to Purchase Agreement)
13. Buyer Disclosure Schedule to Purchase Agreement
14. Seller Disclosure Schedule to Purchase Agreement
* The forms of agreement and schedules listed herein either are immaterial
or their contents are already disclosed in the exhibits being filed
herewith, and therefore, pursuant to paragraph (b)(2) of Regulation S-K,
are being listed herein, but not filed as exhibits to this Form 10-Q. The
St. Paul will furnish supplementally a copy of any omitted schedules and
exhibits to the Commission upon request.