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EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
DATED FEBRUARY 29, 1996
AMONG
FRONTIER INSURANCE COMPANY,
NI ACQUISITION CORP.
AND
CAPSURE HOLDINGS CORP.
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TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 Definitions..................................... 1
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale............................... 6
2.2 Closing......................................... 6
2.3 Post-Closing Purchase Price Adjustment.......... 8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
3.1 Corporate Existence and Power................... 9
3.2 Corporate Authorization......................... 9
3.3 Governmental Authorization...................... 9
3.4 Non-Contravention............................... 9
3.5 Capitalization.................................. 10
3.6 Ownership of Shares............................. 10
3.7 Subsidiaries.................................... 10
3.8 Financial Statements............................ 10
3.9 Absence of Certain Changes...................... 11
3.10 Material Contracts.............................. 12
3.11 Litigation...................................... 12
3.12 Compliance with Laws............................ 12
3.13 Properties...................................... 12
3.14 Intentionally omitted........................... 13
3.15 Brokers' Fees................................... 13
3.16 ERISA and Employee Representations.............. 13
3.17 Environmental Matters........................... 14
3.18 Intercompany Accounts........................... 14
3.19 Reserves........................................ 14
3.20 The Company..................................... 15
3.21 Investments..................................... 15
3.22 Taxes........................................... 15
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Corporate Existence and Power................... 16
4.2 Corporate Authorization......................... 16
4.3 Governmental Authorization...................... 16
4.4 Non-Contravention............................... 16
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4.5 Financing................................... 16
4.6 Purchase for Investment..................... 16
4.7 Brokers' Fees............................... 17
ARTICLE 5
COVENANTS OF SELLER
5.1 Conduct of the Business...................... 17
5.2 Access to Information........................ 17
5.3 Resignations................................. 17
5.4 Regulatory Matters........................... 18
5.5 Release from Lenders......................... 18
5.6 Audited Financial Statements................. 18
5.7 Investment Portfolio Adjustments............. 18
5.8 Estimated UCM Financial Statements........... 18
5.9 Case Reserves Files.......................... 18
5.10 Confidentiality.............................. 18
5.11 Intercompany Accounts........................ 18
5.12 Updated Schedules............................ 19
5.13 Estimated Adjusted Surplus................... 19
5.14 Tangible Net Worth of UCM.................... 19
ARTICLE 6
COVENANTS OF BUYER
6.1 Confidentiality.............................. 19
6.2 Post-Closing Access.......................... 19
6.3 Regulatory Matters........................... 19
6.4 Post-Closing Use of Office Space............. 19
6.5 Agreement to Sublease........................ 19
ARTICLE 7
COVENANTS OF BUYER AND SELLER
7.1 Necessary Assurances.......................... 20
7.2 Filings and Consents.......................... 20
7.3 Public Announcements.......................... 20
7.4 Post-Closing Reinsurance...................... 20
7.5 Government Filings............................ 21
7.6 Closing Statementx............................ 21
7.7 Termination Notices........................... 21
ARTICLE 8
TAX MATTERS
8.1 Buyer Tax Covenants........................... 21
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8.2 Property and Casualty Loss Discount Determination........... 22
8.3 Termination of Tax Sharing Agreements....................... 22
8.4 Tax Sharing................................................. 22
8.5 Cooperation on Tax Matters.................................. 22
8.6 Responsibility for Taxes and Tax Returns.................... 22
8.7 Intentionally omitted....................................... 23
8.8 Apportionment............................................... 23
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Individual Account Plans.................................... 23
9.2 Plans Following the Closing................................. 23
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller.............. 24
10.2 Conditions to Obligation of Buyer.......................... 24
10.3 Conditions to Obligation of Seller......................... 26
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival of Representations, Warranties and Covenants....... 27
11.2 Indemnification by Parent................................... 27
11.3 Indemnification by Buyer.................................... 28
11.4 Terms of Indemnification.................................... 29
11.5 Exclusive Remedy............................................ 31
11.6 Damages Net of Insurance, Etc............................... 31
ARTICLE 12
TERMINATION
12.1 Grounds for Termination...................................... 32
12.2 Effect of Termination........................................ 32
ARTICLE 13
MISCELLANEOUS
13.1 Notices..................................................... 32
13.2 Amendments and Waivers...................................... 33
13.3 Expenses.................................................... 33
13.4 Successors and Assigns...................................... 33
13.5 Governing Law............................................... 33
13.6 Counterparts; Facsimile Signatures.......................... 33
13.7 Third Party Beneficiaries................................... 34
13.8 Entire Agreement............................................ 34
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13.9 Headings................................... 34
13.10 Schedules.................................. 34
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STOCK PURCHASE AGREEMENT
AGREEMENT dated this 29th day of February, 1996 ("Agreement") between
Frontier Insurance Company, a New York corporation ("Buyer"), and NI Acquisition
Corp., a Texas corporation ("Seller") and, for purposes of Section 2.3(c) and
Article 11 hereof only, Capsure Holdings Corp., a Delaware corporation
("Parent").
WITNESSETH:
WHEREAS, Seller is the record and beneficial owner of all of the
issued and outstanding shares of common stock, $.01 par value per share (the
"Common Stock"), and preferred stock, $.01 par value per share (the "Preferred
Stock") of United Capitol Holding Company, a Delaware corporation (the
"Company"); and
WHEREAS, Seller desires to sell all of the issued and outstanding
shares of Common Stock and Preferred Stock (collectively, the "Shares") to
Buyer, and Buyer desires to purchase the Shares from Seller, upon the terms and
subject to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Adjusted Closing Statements" shall have the meaning ascribed to it in
Section 2.3(b).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided, however, that for purposes of this Agreement neither the
Company nor any of its Subsidiaries shall be considered an Affiliate of Seller.
"Agreement" shall have the meaning ascribed to it in the first
paragraph of this Agreement.
"Applicable Tax Rate" means the corporate Tax rate (without the
application of net operating loss carryovers) actually applicable to Buyer or
Seller at the time a Tax Benefit becomes allowable to Buyer, any of its
Affiliates, Seller, the Company or a Subsidiary of the Company (as the case may
be).
"Arbitrating Accountant" shall have the meaning ascribed to it in
Section 2.3(b).
"Audited Consolidated Financial Statements" shall have the meaning
ascribed to it in Section 3.8(a).
"Audited Statutory Financial Statements" shall have the meaning
ascribed to it in Section 3.8(b).
"Audited UCM Financial Statements" shall have the meaning ascribed to
it in Section 3.8(a).
"Balance Sheet Date" means December 31, 1995.
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"Basket" shall have the meaning ascribed to it in Section 11.4(a)(i).
"Benefit Arrangement" means any employment, severance or similar
contract, or any plan or arrangement (whether or not written) providing for
severance benefits, disability, health and life insurance coverage (including
any self-insured arrangements), workers' compensation, disability benefits,
vacation benefits, retirement benefits, deferred compensation, profit-sharing,
bonuses, stock options or other forms of incentive compensation or
post-retirement insurance, compensation or benefits that (a) is not an Employee
Plan, (b) is entered into or maintained, by Seller or any of its ERISA
Affiliates and (c) covers any employee or former employee of the Company or any
of its Subsidiaries.
"Buyer" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Business" means the businesses of the Company and its Subsidiaries
taken as a whole.
"Closing" shall have the meaning ascribed to it in Section 2.2.
"Closing Adjusted Surplus" means the Surplus of UCIC as set forth in
the Closing Balance Sheet (i) minus the Invested Assets (including the
investment in Subsidiaries) as set forth in the Closing Balance Sheet, (ii) plus
such Invested Assets (excluding the investment in Subsidiaries) reflected at the
fair market value thereof as of the Closing Date, (iii) plus the positive amount
of any current liability for Taxes that is the responsibility of Seller pursuant
to Section 8.6 hereof that is reflected in the Closing Balance Sheet, and (iv)
minus the positive amount of any Taxes that is reflected as a recoverable in the
Closing Balance Sheet and which is recoverable by Parent or an Affiliate of
Parent pursuant to Section 8.1(c).
"Closing Balance Sheet" shall have the meaning ascribed to it in
Section 2.3(a).
"Closing Date" means the date of the Closing.
"Closing Income Statement" shall have the meaning ascribed to it in
Section 2.3(a).
"Closing Purchase Price" shall have the meaning ascribed to it in
Section 2.1.
"Closing Statements" shall have the meaning ascribed to it in Section
2.3(a).
"Closing Worksheet" shall have the meaning ascribed to it in Section
2.3(a).
"Code" means the United States Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations promulgated thereunder.
"Common Stock" shall have the meaning ascribed to it in the second
paragraph of this Agreement.
"Company" shall have the meaning ascribed to it in the second
paragraph of this Agreement.
"Confidentiality Agreement" shall have the meaning ascribed to it in
Section 6.1.
"Credit Agreement" shall have the meaning ascribed to it in Section
5.5.
"Damages" shall have the meaning ascribed to it in Section 11.2(a).
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"Direct Rollover" shall have the meaning ascribed to it in Section
9.1.
"Employee" shall mean any full time, part-time or former employee of
the Company or any of its Subsidiaries who is eligible to participate in an
Employee Plan.
"Employee Plan" means any "employee benefit plan", as defined in
Section 3(3) of ERISA, that (a) is subject to any provision of ERISA, (b) is
maintained or contributed to by Seller or any ERISA Affiliate of Seller and (c)
covers any employee or former employee of the Company or any of its
Subsidiaries.
"Environmental Laws" shall have the meaning ascribed to it in Section
3.17.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" of any entity means any other entity which, together
with such entity, would be treated as a single employer under Section 414 of the
Code.
"Estimated Adjusted Surplus" means the Surplus of UCIC as set forth in
the Estimated SAP Closing Balance Sheet (i) minus the Invested Assets (including
the investment in Subsidiaries) as set forth in the Estimated SAP Closing
Balance Sheet, (ii) plus such Invested Assets (excluding the investment in
Subsidiaries) reflected at the fair market value thereof as of two business days
prior to the date of delivery of the Estimated SAP Closing Balance Sheet, (iii)
plus the positive amount of any current liability for Taxes that is the
responsibility of Seller pursuant to Section 8.6 hereof, that is reflected in
the Estimated SAP Closing Balance Sheet, and (iv) minus the positive amount of
any Taxes that is reflected as a recoverable in the Estimated SAP Closing
Balance Sheet and which is recoverable by Parent or an Affiliate of Parent
pursuant to Section 8.1(c).
"Estimated GAAP Closing Balance Sheet" shall have the meaning ascribed
to it in Section 2.2(c)(ii).
"Estimated SAP Closing Balance Sheet" shall have the meaning ascribed
to it in Section 2.2(c)(i).
"Estimated Worksheet" shall have the meaning ascribed to it in Section
2.3(c)(i).
"Federal Tax" means any Tax imposed under Subtitle A of the Code.
"Final Determination" means (a) with respect to Federal Taxes, a
"determination" as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870-AD and, with respect to Taxes other than
Federal Taxes, 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 (b) the payment of Tax by Buyer, Seller
or any of their Affiliates, whichever is 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 and the other party agrees.
"Frontier 401(k) Plan" shall have the meaning ascribed to it in
Section 9.1.
"Frontier Pacific" shall have the meaning ascribed to it in Section
10.1(d).
"GAAP" means U.S. generally accepted accounting principles.
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"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Hazardous Materials" shall have the meaning ascribed to it in Section
3.17.
"IBNR" shall have the meaning ascribed to it in Section 2.2(d)(i).
"Indemnified Party" shall have the meaning ascribed to it in Section
11.6.
"Individual Account Plans" means the Pension Plan and the Parent
401(k) Plan.
"Intercompany Account Statement" shall have the meaning ascribed to it
in Section 5.11.
"Invested Assets" means, as of any date, with respect to (a) UCIC,
those assets required to be included on Page 2, Line 8(a) of UCIC's Statutory
Annual Statement and (b) the Company and its other Subsidiaries, assets of the
type described in clause (a) above.
"Investment Portfolio Adjustments" means the actions taken by Seller
or any of its Subsidiaries to comply with the obligations set forth in Section
5.7 and in connection with the payment of the Special Dividends.
"Leased Properties" means any offices, buildings and other real
property that are leased by the Company or any of its Subsidiaries as of the
date hereof and that are used in the operation of the Business.
"Lien" means, with respect to any material property or asset, any
mortgage, lien, pledge, security interest or encumbrance of any kind in respect
of such material property or asset. For the purposes of the Agreement, a Person
shall be deemed to own any property or asset subject to a Lien if it has
acquired or holds such property or asset subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such property or asset.
"Liquidated Damages" shall have the meaning ascribed to it in Section
11.4(a)(ii).
"Litigation" shall have the meaning ascribed to it in Section 3.11.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on the financial condition, business or assets of such
Person and its Subsidiaries, taken as a whole, excluding the effect of the
transactions contemplated under this Agreement including, without limitation,
the Investment Portfolio Adjustments and the payment of the Special Dividends.
"MGA Agreement" shall have the meaning ascribed to it in Section 7.4.
"Multiemployer Plan" means each Employee Plan that is a multiemployer
plan, as defined in Section 3(37) of ERISA.
"Negative Material Breach" means aggregate costs and penalties in
excess of $75,000; provided, however, that no individual cost or penalty shall
be included in such aggregate unless it exceeds $10,000.
"Parent" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Parent 401(k) Plan" means the Capsure Holdings Corp. 401(k) Plan.
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"Pension Plan" means the United Capitol Insurance Company Pension Plan
and Trust.
"Person" means an individual, corporation, partnership, association,
trust, limited liability company, limited liability partnership or other entity
or organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Post-Closing Tax Period" means any Tax period (or portion thereof)
commencing on or after the close of business on the Closing Date.
"Post-Closing Purchase Price Adjustment" shall have the meaning
ascribed to it in Section 2.3(c).
"Pre-Closing Tax Period" means any Tax period (or portion thereof)
ending on or before the close of business on the Closing Date.
"Purchase Price" shall have the meaning ascribed to it in Section 2.1.
"Reinsurance Agreement" shall have the meaning ascribed to it in
Section 7.4.
"Reserves" shall have the meaning ascribed to it in Section 3.19.
"SAP" means the statutory accounting practices prescribed or permitted
by the Office of the Commissioner of Insurance of the State of Wisconsin or the
National Association of Insurance Commissioners.
"SAP Equity Adjustment" shall have the meaning ascribed to it in
Section 2.2(f).
"Seller" shall have the meaning ascribed to it in the first paragraph
of this Agreement.
"Seller Group" means, with respect to Federal income Taxes, the
affiliated group of corporations (as defined in Section 1504(a) of the Code) of
which Seller is a member.
"Seller's Senior Officers" means Bruce A. Esselborn, Mary Jane
Robertson, Kelly L. Stonebraker and Ronald D. Bobman.
"Shares" shall have the meaning ascribed to it in the third paragraph
of this Agreement.
"Special Dividends" means the aggregate of all dividends paid by the
Company to Seller and by the Company's Subsidiaries to the Company from January
1, 1996 through and including the Closing Date.
"Straddle Period" shall have the meaning ascribed to it in Section
8.8.
"Subsidiary" means, with respect to any Person, any entity whose
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are, at the time, directly owned by such Person or indirectly owned by such
Person through a Subsidiary.
"Surplus" means surplus as regards policyholders determined in
accordance with SAP.
"Tangible Net Worth" shall have the meaning ascribed to it in Section
5.14.
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"Tax" means (a) any net income tax or franchise tax based on net
income, (including any alternative or add-on minimum taxes, and gross income,
gross receipts, premium, sales, use, ad valorem, value added, transfer, profits,
license, payroll, employment, excise, severance, stamp, occupation, property or
windfall profit tax, custom duty or other tax, governmental fee or other like
assessments), together with any interest, penalty, addition to tax or additional
amount due from, or in respect of, the Company and its Subsidiaries imposed by a
Taxing Authority and (b) any liability for the payment of any amount of the type
described in the immediately preceding clause (a) as a result of the Company or
any of its Subsidiaries being a member of Seller Group.
"Tax Benefit" means any deduction, amortization, exclusion from income
or credit or other allowance.
"Tax Loss" shall have the meaning ascribed to it in Section
11.2(c)(iii).
"Tax Returns" means all material Tax returns, statements, reports and
forms, including, without limitation, consolidated returns, statements, reports
and forms, where applicable.
"Tax Sharing Agreements" means the various Tax sharing agreements
entered into by and between Parent, Seller, the Company and its Subsidiaries,
applicable to all taxable periods commencing February 20, 1990 and ending on the
Closing Date.
"Taxing Authority" means any governmental authority (domestic or
foreign) responsible for the imposition of any Tax.
"Termination Notice" shall have the meaning ascribed to it in Section
10.1(d).
"Third Party Claim" shall have the meaning ascribed to it in Section
11.4(d)(i).
"UCIC" shall have the meaning ascribed to it in Section 2.2(c)(i).
"UCM" means United Capitol Managers, Inc., a Delaware corporation and
wholly-owned subsidiary of UCIC.
"Western Surety" shall have the meaning ascribed to it in Section 7.4.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions
set forth in this Agreement, Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the Shares at the Closing. The purchase price for the
Shares is Thirty Million Nine Hundred Twenty Thousand and 00/100 Dollars
($30,920,000) (the "Purchase Price") plus or minus the amount of the SAP Equity
Adjustment calculated pursuant to Section 2.2(f) (the "Closing Purchase Price").
The Closing Purchase Price shall be paid in cash as provided in Section 2.2 and
further adjusted, if applicable, pursuant to the provisions of Section 2.3
hereto.
2.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") shall take place at the offices of Epstein Becker &
Green, P.C., New York, New York as soon as possible, but in no event later than
twelve business days after satisfaction of the conditions set forth in Article
10, or at such other time or place as Buyer and Seller may agree. At the
Closing:
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(a) Buyer shall deliver to Seller the Closing Purchase Price in
immediately available funds by wire transfer to an account of Seller, designated
in writing by Seller by notice to Buyer at least two business days prior to the
Closing Date, and all documents to be delivered under Section 10.3.
(b) Seller shall deliver to Buyer certificates for the Shares
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
and all documents to be delivered under Section 10.2.
(c) At least five business days prior to the Closing Date,
Seller shall deliver, or cause to be delivered, to Buyer the following:
(i) a balance sheet of United Capitol Insurance Company, a
Wisconsin corporation ("UCIC"), estimated as of the Closing Date prepared
(x) in accordance with SAP and (y) on a basis consistent with the SAP
balance sheet included in the Audited Statutory Financial Statements (the
"Estimated SAP Closing Balance Sheet"), accompanied by a worksheet (the
"Estimated Worksheet") setting forth the calculation of Estimated Adjusted
Surplus, together with the related statement of income for the period
January 1, 1996 through the Closing Date;
(ii) an interim consolidated balance sheet of the Company
and its Subsidiaries estimated as of the Closing Date prepared, except as
noted in Section 2.2(e)(ii), (x) in accordance with GAAP, (y) on a basis
consistent with the GAAP balance sheet included in the 1995 Audited
Consolidated Financial Statements (the "Estimated GAAP Closing Balance
Sheet"), together with the related consolidated statement of income for the
period January 1, 1996 through and including the Closing Date; and
(iii) a certification by the Chief Financial Officer of
Seller and the Controller of the Company representing that the Estimated
SAP Closing Balance Sheet and the Estimated GAAP Closing Balance Sheet,
together with the respective related statements of income for the period
January 1, 1996 through and including the Closing Date, have been prepared,
in all material respects, in accordance with SAP and, except as noted in
Section 2.2(e)(ii), in accordance with GAAP, respectively, applied on a
basis consistent with the Audited Statutory Financial Statements and the
1995 Audited Consolidated Financial Statements, respectively, and in
accordance with the provisions of Section 2.2(d) and 2.2(e), respectively.
(d) The Estimated SAP Closing Balance Sheet shall be prepared
in accordance with SAP as set forth in Section 2.2(c)(i) and shall reflect the
following:
(i) Reserves shall be estimated in accordance with
generally accepted actuarial standards and consistent with past practice
and, in estimating Reserves as at the Closing Date, such calculation shall
include, among other things, the amounts of the (x) incurred but not
reported losses (net of ceded reinsurance) and (y) unpaid unallocated loss
adjustment expenses ((x) and (y) together referred to as "IBNR", which IBNR
was twenty-six million dollars ($26,000,000) as of December 31, 1995); and
(ii) Invested Assets comprised only of (x) cash and cash
equivalents, (y) short-term investments and (z) fixed income securities
that were owned by the Company on December 31, 1995, and which are not set
forth on Schedule 2.2(d)(ii) hereto furnished by Buyer;
(e) The Estimated GAAP Closing Balance Sheet shall be prepared
on an interim basis in accordance with GAAP (except as provided in subsection
(ii) below) applied as set forth in Section 2.2(c)(ii) and shall reflect the
following:
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(i) the accounts of the Company and its Subsidiaries on a
stand-alone basis; and
(ii) the exclusion of financial statement footnotes.
(f) The "SAP Equity Adjustment" shall be equal to the positive
amount of the difference between $19,000,000 and Estimated Adjusted Surplus.
The Closing Purchase Price shall thereupon be determined as follows: (i) if
Estimated Adjusted Surplus exceeds $19,000,000, then the Closing Purchase Price
shall be equal to the Purchase Price plus the amount by which Estimated Adjusted
Surplus exceeds $19,000,000, or (ii) if Estimated Adjusted Surplus is less than
$19,000,000, then the Closing Purchase Price shall be equal to the Purchase
Price minus the amount by which $19,000,000 exceeds Estimated Adjusted Surplus.
2.3 Post-Closing Purchase Price Adjustment. (a) Within 45 days
after the Closing Date, Buyer shall cause to be prepared, under the supervision
of Seller and its representatives, a balance sheet of UCIC as at the Closing
Date (the "Closing Balance Sheet") and a statement of income of UCIC for the
period January 1, 1996 through and including the Closing Date (the "Closing
Income Statement"), each prepared on a basis consistent with the Estimated SAP
Closing Balance Sheet, with account balances computed in accordance with SAP
consistently applied, and a worksheet setting forth the calculation of Closing
Adjusted Surplus (the "Closing Worksheet" and, together with the Closing Balance
Sheet, the "Closing Statements") and certified to such effect by the Controller
of the Company and approved by Buyer and Seller.
(b) Within 15 days after receipt of the Closing Statements,
either Buyer or Seller may notify the other that it disputes all or part of the
Closing Statements, and if neither Buyer nor Seller so notifies the other, then
Buyer and Seller shall be deemed to have accepted the Closing Statements. If
either party notifies the other of a dispute, then, during the 15-day period
following the date of the last notice of dispute given, Buyer and Seller shall
use reasonable efforts to resolve the dispute and agree upon the Closing
Statements. If Buyer and Seller are unable to resolve the dispute within such
15-day period, then the dispute shall be submitted within five days of such
15-day period to an office of KPMG Peat Marwick in the eastern United States
having a significant property and casualty insurance practice for determination
(the "Arbitrating Accountant"). The determination of the Arbitrating Accountant
shall be made within 30 days after submission by the parties hereto, and any
changes to the Closing Statements required by such determination shall be set
forth by the Arbitrating Accountant in adjustments to the Closing Statements
(the "Adjusted Closing Statements"), which Adjusted Closing Statements shall be
final and binding and shall be delivered by the Arbitrating Accountant to Buyer
and Seller. If the Arbitrating Accountant's determination with respect to all
disputes (i) results in a net adjustment to the Closing Purchase Price in favor
of Seller, then Buyer shall pay the reasonable fees and expenses of the
Arbitrating Accountant; (ii) results in a net adjustment to the Closing Purchase
Price in favor of Buyer, then Seller shall pay the reasonable fees and expenses
of the Arbitrating Accountant; (iii) results in no net adjustment to the Closing
Purchase Price, then the party giving the dispute notice shall pay the
reasonable fees and expenses of the Arbitrating Accountant; or (iv) results in
no net adjustment to the Closing Purchase Price and both Buyer and Seller gave a
dispute notice, then Buyer shall pay fifty percent (50%) and Seller shall pay
fifty percent (50%) of the reasonable fees and expenses of the Arbitrating
Accountant.
(c) The Closing Purchase Price shall be adjusted as follows
(the "Post-Closing Purchase Price Adjustment"): (i) If Closing Adjusted Surplus
set forth on the Closing Worksheet (or the closing worksheet included in the
Adjusted Closing Statements, if applicable) exceeds Estimated Adjusted Surplus,
then Buyer shall pay to Seller the amount of such difference, or (ii) if Closing
Adjusted Surplus set forth on the Closing Worksheet (or the closing worksheet
included in the Adjusted Closing Statements, if applicable) is less than
Estimated Adjusted Surplus, then Parent shall pay to Buyer the amount of such
difference. Any payment required in this Section shall be made in immediately
available funds by wire transfer to an account of Seller or
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Buyer, as the case may be, as designated in writing by notice by the other
party, within 10 days following the determination of such Post-Closing Purchase
Price Adjustment.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as of the date hereof and as
of the Closing Date that:
3.1 Corporate Existence and Power. Seller has been incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Texas and has all corporate powers required to carry on its business as
now conducted. The Company (a) has been incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, (b) has
all corporate powers required to carry on its business as now conducted, (c) has
all governmental licenses, permits, authorizations, consents and approvals
required to carry on the Business as now conducted, all of which are in full
force and effect, and (d) is qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where such qualification is
necessary, except, with respect to clauses (c) and (d) above, for those
licenses, permits, authorizations, consents and approvals the absence of which,
and those jurisdictions where failure to be so qualified, would not result in a
Negative Material Breach. Seller has heretofore provided to Buyer true and
complete copies of the certificate of incorporation and bylaws of Seller and the
Company as in effect on the date hereof.
3.2 Corporate Authorization. Except as set forth in Schedule 3.2
hereto, the execution, delivery and, subject to the receipt of the approvals
referred to in Section 3.3, performance by Seller of this Agreement and the
transactions contemplated hereunder are within Seller's corporate powers and
have been duly authorized by all necessary corporate action on the part of
Seller. This Agreement constitutes a valid and legally binding agreement of
Seller, enforceable against Seller in accordance with its terms, subject to (a)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and the rights of creditors of
insurance companies generally and (b) general principles of equity (regardless
of whether considered in a proceeding at law or equity).
3.3 Governmental Authorization. Except as set forth in Schedule 3.3
hereto, the execution, delivery and performance by Seller of this Agreement
requires no action by or in respect of, or filing with, any governmental body,
agency, or official on the part of Seller or any of its Subsidiaries other than
(a) compliance with any applicable requirements of the HSR Act, (b) approvals or
filings under applicable Federal and state securities laws and under the
applicable state insurance laws of the jurisdictions set forth on Schedule 3.3
hereto, (c) filings and notices not required to be made or given until after the
Closing Date and filings, at any time, of Tax Returns, Tax reports and Tax
information statements and (d) any such action or filing as to which the failure
to make or obtain would not result in a Negative Material Breach.
3.4 Non-Contravention. Except as set forth in Schedule 3.4 hereto,
the execution, delivery and performance by Seller of this Agreement do not and
will not (a) violate the certificate of incorporation or bylaws of Seller, the
Company or any of its Subsidiaries, (b) assuming compliance with the matters
referred to in Section 3.3, violate any applicable law, rule, regulation,
judgment, injunction, order or decree, (c) require any consent or other action
by any Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or any of its Subsidiaries, or to a loss of any benefit to which the
Company or any Subsidiary of the Company is entitled, under any agreement or
other instrument binding upon the Company or any of its Subsidiaries or (d)
result in the creation or imposition of any Lien on any asset of the Company or
any of its Subsidiaries except, in the case of clauses (b),
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(c) and (d) above, to the extent that any such violation, failure to obtain any
such consent or other action, default, right, loss or Lien would not result in a
Negative Material Breach.
3.5 Capitalization. (a) The authorized capital stock of the
Company consists of 650,000 shares of Common Stock and 493,750 shares of
Preferred Stock. As of the date hereof, there are outstanding 73,850 shares of
Common Stock and 447,418 shares of Preferred Stock.
(b) All outstanding shares of Common Stock and Preferred Stock
have been duly authorized and validly issued and are fully paid and
non-assessable. Except as set forth in this Section 3.5 and Schedule 3.5 hereto,
there are no outstanding (i) shares of capital stock or voting securities of
the Company, (ii) securities of the Company convertible into or exchangeable
for shares of capital stock or voting securities of the Company or (iii)
options or other rights to acquire from the Company, or other obligations of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company; and there are no outstanding obligations of the Company or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any such securities.
3.6 Ownership of Shares. Except as set forth in Schedule 3.6
hereto, Seller is the record and beneficial owner of the Shares, free and clear
of any Lien (except for the pledge pursuant to the Credit Agreement) and will
transfer and deliver to Buyer at the Closing valid title to the Shares, free and
clear of any Lien, except Liens arising as a result of any action taken by Buyer
or any of its Affiliates; provided, however, that Seller makes no representation
regarding the ability of any Person other than Seller to transfer or otherwise
dispose of the Shares without registration or qualification under, or in
compliance with, applicable Federal securities or state securities or insurance
laws.
3.7 Subsidiaries. Except as set forth in Schedule 3.7: (a) Each
Subsidiary of the Company has been incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of incorporation
and has all corporate powers and all governmental licenses, permits,
authorizations, consents and approvals required to carry on its business as now
conducted, all of which are in full force and effect, and is qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
where such qualification is necessary, except for those jurisdictions where the
failure to be so qualified, and those licenses, authorizations, consents and
approvals the absence of which, would not result in a Negative Material Breach.
Each Subsidiary of the Company, together with its jurisdiction of incorporation
and percentage ownership of the capital stock of any other Subsidiary, is
described on Schedule 3.7 hereto. Attached to Schedule 3.7 are true and
complete copies of the articles of incorporation and by-laws of each of the
Subsidiaries of the Company.
(b) Except as set forth on Schedule 3.7 hereto, as of the
Closing Date, all of the outstanding capital stock of, or other voting
securities or ownership interests in, each Subsidiary of the Company will be
owned by the Company, directly or indirectly, free and clear of any Lien. There
are no outstanding (i) securities of the Company or any of its Subsidiaries
convertible into or exchangeable for shares of capital stock or other voting
securities or ownership interests in any Subsidiary of the Company or (ii)
options or other rights to acquire from the Company or any of its Subsidiaries,
or other obligations of the Company or any of its Subsidiaries to issue, any
capital stock or other voting securities or ownership interests in, or any
securities convertible into or exchangeable for any capital stock or other
voting securities or ownership interests in, any Subsidiary of the Company; and
there are no outstanding obligations of the Company or any of its Subsidiaries
to repurchase, redeem or otherwise acquire any such securities.
3.8 Financial Statements. (a) GAAP Financial Statements. As of
the date of this Agreement, the draft consolidated balance sheets of the Company
and its Subsidiaries as of December 31, 1994 and 1995 and the related draft
consolidated statements of income and cash flows for the years then ended, which
previously have been furnished to Buyer, present fairly, in all material
respects, the consolidated financial
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position of the Company and its Subsidiaries as of the dates thereof and the
consolidated results of operations of the Company and its Subsidiaries for the
respective periods then ended in conformity with GAAP. In addition, the draft
balance sheet of UCM as of December 31, 1995 and the related statement of income
and cash flows for the year then ended, which previously have been furnished to
Buyer, present fairly, in all material respects, the financial position of UCM
as of December 31, 1995 and the results of operations of UCM for the year then
ended in conformity with GAAP. As of the Closing Date, the audited consolidated
balance sheets of the Company and its Subsidiaries as of December 31, 1994 and
1995 and the related audited consolidated statements of income and cash flows
for the years then ended (the "Audited Consolidated Financial Statements"), to
be furnished to Buyer pursuant to Section 5.6 hereof, will present fairly, in
all material respects, the consolidated financial position of the Company and
its Subsidiaries as of the dates thereof and the consolidated results of
operations of the Company and its Subsidiaries for the respective periods then
ended in conformity with GAAP. In addition, as of the Closing Date the audited
balance sheets of UCM as of December 31, 1994 and 1995 and the related audited
statements of income and cash flows for the years then ended (the "Audited UCM
Financial Statements"), to be furnished to Buyer pursuant to Section 5.6 hereof,
will present fairly, in all material respects, the financial position of UCM as
of the dates thereof and the results of operations of UCM for the years then
ended in conformity with GAAP.
(b) Statutory Financial Statements. The audited statutory
balance sheets of UCIC as of December 31, 1993 and December 31, 1994, and the
related audited statutory statements of income and changes in capital and
surplus and cash flows for each of the years then ended and, as at the date of
this Agreement, the draft statutory balance sheet of UCIC as of December 31,
1995 and the related draft statutory statements of income and changes in capital
and surplus and cash flows for the year then ended, which previously have been
furnished to Buyer, present fairly, in all material respects, the admitted
assets, liabilities, capital and surplus, cash flows and other funds of UCIC as
at the dates and for the periods indicated, in conformity with SAP. As of the
Closing Date, the audited statutory balance sheet of UCIC as of December 31,
1995 and the related audited statutory statements of income and changes in
capital and surplus and cash flows for the year then ended (the "Audited
Statutory Financial Statements") to be furnished to Buyer pursuant to Section
5.6 hereof, will present fairly, in all material respects, the admitted assets,
liabilities, capital and surplus, cash flows and other funds of UCIC as at the
date and for the period indicated, in conformity with SAP.
3.9 Absence of Certain Changes. Except as disclosed in Schedule 3.9
hereto, since the Balance Sheet Date, the Business has been conducted, in all
material respects, in the ordinary course consistent with past practices, and
other than (a) the Investment Portfolio Adjustments and the transactions
relating to, and the payment of, the Special Dividends, (b) any payments
pursuant to the Tax Sharing Agreements, and (c) a downgrade, if any, in UCIC's
A.M. Best & Co. rating to "A-" or an announcement, if any, that UCIC's rating is
under review with or without negative implications, there has not been:
(i) any declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of capital stock
of the Company or any of its Subsidiaries or any repurchase, redemption or
other acquisition by the Company or any of its Subsidiaries of any
outstanding shares of capital stock or other securities of, or other
ownership interests in, the Company or any of its Subsidiaries;
(ii) any incurrence, assumption or guarantee by the Company
or any of its Subsidiaries of any outstanding indebtedness for borrowed
money in excess of an aggregate of $100,000 other than under, or in
connection with, the Credit Agreement;
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(iii) any transaction or commitment made, or any contract or
agreement entered into, by the Company or any of its Subsidiaries requiring
payments aggregating in excess of $250,000, other than obligations arising
under or in connection with insurance, reinsurance or indemnity agreements
or policies, surety bonds, agency, brokerage or similar contracts or
undertakings issued or entered into in the ordinary course of the Business
consistent with past practices, or transactions or commitments contemplated
by this Agreement;
(iv) any material change in any method of accounting or
accounting practice by the Company or any of its Subsidiaries, except for
any such change after the date hereof as a result of a change in GAAP or
SAP or as contemplated by Sections 2.2(d) and 2.2(e) hereto; or
(v) any (x) employment, deferred compensation, severance,
retirement or other similar agreement entered into with any director,
officer or employee of the Company or any of its Subsidiaries (or any
amendment to any such existing agreement), other than in the ordinary
course of Business consistent with past practice, (y) grant of any
severance or termination pay to any director, officer or employee of the
Company or any of its Subsidiaries other than in the ordinary course of
Business consistent with existing policies, or (z) change in compensation
or other benefits payable to any director, officer or employee of the
Company or any of its Subsidiaries other than in the ordinary course of
Business consistent with past practice.
3.10 Material Contracts. Except as disclosed in Schedule 3.10
hereto, neither the Company nor any of its Subsidiaries is bound by or a party
to any contract, other than insurance, reinsurance or indemnity agreements or
policies, surety bonds, agency, brokerage or similar contracts or undertakings,
or contracts cancelable on not more than 60 days' notice, which provides for
payments aggregating $100,000 or more, and the Company has not received written
notice of any breach under any such contract.
3.11 Litigation. Except as set forth on Schedule 3.11 hereto and
except for any action, suit, investigation or proceeding ("Litigation") which
may result in, or which relates in any way to, any insurance, reinsurance or
indemnity policy or agreement, surety bond or similar contract or undertaking
issued or entered into by the Company or any of its Subsidiaries, there is no
Litigation pending or, to the knowledge of Seller's Senior Officers, threatened
against or affecting, the Company or any of its Subsidiaries or any of their
respective properties before any court or arbitrator or any governmental body,
agency or official which, assuming an adverse decision, individually and net of
insurance proceeds or other recoveries and any financial statement reserve for
such Litigation, would reasonably be expected to require payments by the Company
or any of its Subsidiaries of an amount in excess of $50,000.
3.12 Compliance with Laws. Except as set forth on Schedule 3.12
hereto or as previously disclosed to Buyer in writing expressly for the purposes
of this Section 3.12 prior to the date hereof, the Company and its Subsidiaries
are in compliance with all applicable laws, statutes, ordinances and
regulations, whether Federal, state or local, except where the failure to comply
would not result in a Negative Material Breach.
3.13 Properties. Schedule 3.13-A hereto sets forth a schedule of
the fixed assets of the Company and its Subsidiaries as set forth on the draft
consolidated balance sheet of the Company and its Subsidiaries as at December
31, 1995 previously furnished to Buyer and the related costs thereof and will,
at the Closing Date, set forth a schedule of such fixed assets as set forth on
the audited consolidated balance sheet of the Company and its Subsidiaries as at
December 31, 1995 to be delivered pursuant to Section 5.6 hereof, and related
costs thereof, except where the failure to schedule assets would not result in a
Negative Material Breach. Except as set forth on Schedule 3.13-B hereto, the
Company and its Subsidiaries have good title to or, in the case of leased
property, have valid leasehold interests in, all property and assets (whether
real or personal, tangible
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or intangible, other than the Invested Assets which are referred to in Section
3.21 hereof), to be reflected on the audited consolidated balance sheet of the
Company and its Subsidiaries as at December 31, 1995 or acquired after the
Balance Sheet Date except for (a) property and assets sold or otherwise disposed
of since the Balance Sheet Date in the ordinary course of Business consistent
with past practice, (b) property or assets sold or distributed to Seller by the
Company pursuant to the Special Dividends, and (c) such imperfections in title
or invalidities in leasehold interests as do not result in a Negative Material
Breach. None of such property or assets is subject to any Liens, except:
(i) Liens disclosed on the balance sheet contained in the
1995 Audited Consolidated Financial Statements;
(ii) Liens for Taxes not yet due or being contested in good
faith (and for which adequate accruals or reserves have been established on
the balance sheet contained in the 1995 Audited Consolidated Financial
Statements);
(iii) Liens arising after the Balance Sheet Date in the
ordinary course of the Business consistent with past practice; or
(iv) Liens which do not materially detract from the value
or materially interfere with any present or intended use of such property
or assets.
3.14 Intentionally omitted.
3.15 Brokers' Fees. Except for Smith Barney Inc., whose fees will
be paid by Seller, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
Seller, the Company or any of its Subsidiaries who might be entitled to any fee
or commission in connection with the transactions contemplated by this
Agreement.
3.16 ERISA and Employee Representations. (a) Schedule 3.16(a)
identifies each Employee Plan. Seller has furnished or made available to Buyer
copies of the Employee Plans (and, if applicable, related trust agreements) and
all amendments thereto together with the most recent annual report prepared in
connection with any Employee Plan (Form 5500 including, if applicable, Schedule
B thereto). Except as set forth on Schedule 3.16(a) hereto, all required
reports and descriptions of the Employee Plans (including Form 5500 Annual
Reports, Summary Annual Reports and Summary Plan Descriptions, as required) have
been appropriately filed and distributed, and any notice required by ERISA or
the Code or any other state or Federal law or any ruling or regulation of any
state or Federal administrative agency with respect to the Employee Plans have
been appropriately made, and all contributions for all periods prior to the date
hereof have been made, except where the failure to make such filings,
distributions, notices or contributions would not result in a Negative Material
Breach.
(b) Neither Seller nor any ERISA Affiliate of Seller has
incurred, or reasonably expects to incur prior to the Closing Date, any
liability under Title IV or ERISA arising in connection with the termination of,
or complete or partial withdrawal from, any Employee Plan that is reasonably
expected to become a liability of Buyer or any of its ERISA Affiliates after the
Closing Date.
(c) Except as described in Schedule 3.16(c) hereto, each
Employee Plan that is intended to be qualified under Section 401(a) of the Code
is and has been subject to a favorable determination letter from the Internal
Revenue Service and/or has pending a request for a determination timely filed
with the Internal Revenue Service in respect of compliance with the Code.
Except as set forth in Schedule 3.16(c) hereto, each Employee Plan has been
maintained in compliance with its terms and with requirements prescribed by
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ERISA and the Code, except where the failure to so comply would not result in a
Negative Material Breach. No Employee Plan is a Multiemployer Plan.
(d) Schedule 3.16(d) identifies each Benefit Arrangement, and
identifies all outstanding claims for benefits made by any Employee thereunder
as of the date hereof other than health, dental, long-term disability, group
life, and group accidental death and dismemberment claims. Seller has furnished
or made available to Buyer copies or descriptions of each Benefit Arrangement.
Except as set forth in Schedule 3.16(d), each Benefit Arrangement has been
maintained in compliance with its terms and with the requirements prescribed by
any and all applicable statutes, orders, rules and regulations including,
without limitation, the payment in full of insurance premiums due through the
date hereof, except where the failure to so comply would not result in a
Negative Material Breach.
(e) Seller previously has furnished Buyer with a list of all
Employees, together with their respective salaries and accrued vacation days,
and identifying those Employees classified by the Company as "exempt" under the
Federal Labor Standards Act as at the delivery date of such list.
3.17 Environmental Matters. To the actual knowledge of Seller's
Senior Officers without inquiry, except as disclosed on Schedule 3.17, neither
the Company nor any of its Subsidiaries nor any other Person, has stored,
disposed or discharged, on, under or about any of the Leased Properties any
flammables, contaminants, gasoline, petroleum products, crude oil, explosives,
radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic
substances, polychlorinated biphenyls or related or similar materials, asbestos
or any material containing asbestos, any air, soil or water pollution, or any
other substance or material as may be defined as a hazardous or toxic substance
(collectively, "Hazardous Materials") under any applicable Federal or state
governmental law, rule, or regulation, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 U.S.C. Sections 9601, et. seq.), the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Section 1801, et. seq.), the Solid
Waste Disposal Act, as amended (42 U.S.C. Section 6901 et. seq.), the Resource
Conservation and Recovery Act, as amended (42 U.S.C. Sections 6901 et. seq.),
the Federal Water Pollution Prevention and Control Act, as amended (33 U.S.C.
Sections 1251 et. seq.), the Clean Air Act, as amended (42 U.S.C. Sections 7401
et. seq.), the Toxic Substances Control Act, as amended (15 U.S.C. Sections 2601
et. seq.), the Occupational Safety and Health Act, as amended (29 U.S.C.
Sections 651 et. seq.) and the state laws implementing said acts (collectively,
"Environmental Laws") requiring remediation or notice to any governmental
authority under the Environmental Laws, and neither the Company nor any of its
Subsidiaries has received written notice from any governmental authority
alleging violations of any Environmental Laws. To the actual knowledge of
Seller's Senior Officers without inquiry, none of the Leased Properties has ever
been used to generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process material amounts of Hazardous Materials,
except in compliance with Environmental Laws. Notwithstanding anything to the
contrary contained in this Section, no representation or warranty is being made
with respect to the liability of the Company and its Subsidiaries under any
policy or agreement of insurance, reinsurance or indemnity relating to any
Environmental Laws or Hazardous Materials.
3.18 Intercompany Accounts. Schedule 3.18 hereto lists all
intercompany balances as of the Balance Sheet Date between Seller and its
Affiliates, on the one hand, and the Company and its Subsidiaries, on the other
hand (except for inaccuracies which would not result in a Negative Material
Breach), and describes the general types of intercompany transactions that have
occurred between the Balance Sheet Date and the date of this Agreement.
3.19 Reserves. The reserves for unpaid losses and loss adjustment
expenses, including but not limited to IBNR (collectively, the "Reserves"), in
the draft consolidated balance sheet of the Company and its Subsidiaries as of
December 31, 1995 and the draft statutory financial statement of UCIC as of
December 31,
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1995, each previously furnished to Buyer, were, and upon delivery of the audited
consolidated balance sheet of the Company and its Subsidiaries as of December
31, 1995 and the audited statutory balance sheet of UCIC as of December 31, 1995
the Reserves therein will be, estimated as of December 31, 1995 in accordance
with generally accepted actuarial standards, in accordance with GAAP and SAP,
respectively. Due to the variability and uncertainty which are intrinsic to the
claim evaluation and settlement processes, neither Parent nor Seller can
guaranty, and neither Parent nor Seller assumes any liability or makes any
representation or warranty with respect to, the ultimate adequacy of Reserves or
the sufficiency of Reserves to provide for all unpaid loss and loss adjustment
expense obligations.
3.20 The Company. Prior to the date hereof, the Company has not
engaged in any operations or activities other than operations or activities in
connection with (a) its formation and organization, (b) this Agreement and the
transactions contemplated hereby and (c) the ownership of stock of one or more
of its Subsidiaries.
3.21 Investments. Except as set forth on Schedule 3.21 hereof, the
Company or its Subsidiaries are in possession of all certificates and other
documentation necessary to evidence ownership of the Invested Assets, and has
good and marketable title, free and clear of all Liens, to all Invested Assets
as of December 31, 1995 or acquired after December 31, 1995, other than Invested
Assets that (a) have been disposed of in the ordinary course of the Business
consistent with past practices, or (b) have been transferred or disposed of by
the Company or its Subsidiaries (i) in connection with the Investment Portfolio
Adjustments or (ii) pursuant to transactions relating to, and the payment of,
the Special Dividends.
3.22 Taxes. Except as set forth on Schedule 3.22-A hereto, (a) all
Tax Returns required to be filed with any Taxing Authority by or with respect to
the Company or any of its Subsidiaries with respect to any Pre-Closing Tax
Period have been filed or will be filed in accordance with all applicable laws
(taking into account any extension of a required filing date); (b) the Company
and its Subsidiaries have timely paid all Taxes including, without limitation,
pursuant to the Tax Sharing Agreements, shown as due and payable on the Tax
Returns that have been filed by or on behalf of the Company and its
Subsidiaries; (c) the Company and its Subsidiaries have made or will on or
before the Closing Date make provision for all Taxes payable by the Company and
its Subsidiaries for any pre-Closing Tax Period for which no Tax Return has yet
been filed; (d) the amounts paid to Seller or Parent pursuant to the Tax Sharing
Agreements and the reserves for Taxes with respect to the Company and its
Subsidiaries to be reflected on the Estimated GAAP Closing Balance Sheet will be
adequate to cover the Tax liabilities accruing through the date thereof; (e)
there is no action, suit, proceeding, investigation, audit or claim now pending
or, to the knowledge of Seller's Senior Officers, proposed against or with
respect to the Company or its Subsidiaries in respect of any Tax; (f) the
Company and its Subsidiaries have withheld payments of all amounts required to
be withheld and have paid all withholding Taxes required to be paid under
Federal, state, local and foreign Tax laws or have made adequate provision for
all such withholding or payments; (g) no election under Sections 108, 168, 338,
441, 1017, 1033 or 4977 of the Code is in effect with respect to the Company or
any of its Subsidiaries; (h) neither the Company nor any of its Subsidiaries is
required to make any adjustment pursuant to Section 481 of the Code by reason of
a change in accounting method, and there are no applications for changes in
accounting method pending with any Tax Authority; (i) there are no deferred
intercompany gains or losses (as defined in Treasury Regulation 1.1502-13 of the
Code) with respect to the Company and its Subsidiaries, on the one hand, and the
Seller and its Affiliates, on the other hand; (j) neither the Company nor any of
its Subsidiaries is jointly or severally liable for Federal Taxes on income as a
result of being a member of another consolidated group, other than Seller Group;
and (k) each of the Company and its Subsidiaries has paid or made adequate
provision for payment of all guarantee fund assessments that are due, claimed or
asserted by any insurance regulatory authority, provided, however, with respect
to guarantee fund assessments claimed or asserted, that written notice of such
claimed or asserted assessments has been received by the Company or its
Subsidiaries. Schedule 3.22-B hereto lists all of the Tax Sharing Agreements,
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and a list of jurisdictions in which the Company or any of its Subsidiaries has
filed an income, franchise or premium Tax Return.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as of the date hereof and as
of the Closing Date that:
4.1 Corporate Existence and Power. Buyer has been incorporated and
is validly existing as a corporation in good standing under the laws of the
State of New York and has all corporate powers and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, consents
and approvals the absence of which would not have a Material Adverse Effect on
Buyer. Buyer has heretofore provided to Seller true and complete copies of its
certificate of incorporation and bylaws as in effect on the date hereof.
Schedule 4.1 hereto sets forth a list of each insurance Affiliate of Buyer and
its respective State of incorporation.
4.2 Corporate Authorization. The execution, delivery and, subject
to the receipt of the approvals referred to in Section 4.3, performance by Buyer
of this Agreement is within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a valid and legally binding agreement of Buyer,
enforceable against Buyer in accordance with its terms, subject to (a)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium and
other similar laws now or hereafter in effect relating to or affecting the
enforcement of creditors' rights generally and the rights of creditors of
insurance companies generally and (b) general principles of equity (regardless
of whether considered in a proceeding at law or in equity).
4.3 Governmental Authorization. The execution, delivery and
performance by Buyer of this Agreement requires no action by or in respect of,
or filing with, any governmental body, agency or official on the part of Buyer
or any of its Subsidiaries other than (a) compliance with any applicable
requirements of the HSR Act, (b) approvals or filings under the applicable
insurance laws of the jurisdictions set forth in Schedule 4.3, and (c) filings
and notices not required to be made or given until after the Closing Date and
filings, at any time, of Tax Returns, Tax reports and Tax information
statements.
4.4 Non-Contravention. The execution, delivery and performance by
Buyer of this Agreement do not and will not (a) violate the certificate of
incorporation or bylaws of Buyer or any of its Subsidiaries, (b) assuming
compliance with the matters referred to in Section 4.3, violate (x) any
applicable law, rule or regulation or (y) any judgment, injunction, order or
decree, (c) require any consent or other action by any Person under, constitute
a default under, or give rise to any right of termination, cancellation or
acceleration of any right or obligation of Buyer or any of its Subsidiaries or
to a loss of any benefit to which Buyer or any of its Subsidiaries is entitled
under, any agreement or other instrument binding upon Buyer or any of its
Subsidiaries or any license, franchise, permit or other similar authorization
held by Buyer or any of its Subsidiaries or (d) result in the creation or
imposition of any Lien on any asset of Buyer or any of its Subsidiaries except,
in the case of clauses (b), (c) and (d) above, to the extent that any such
violation, failure to obtain any such consent or other action, default, right,
loss or Lien would not result in a Material Adverse Effect on Buyer.
4.5 Financing. Buyer has, or will have prior to the Closing,
sufficient immediately available funds to enable it to make payment at the
Closing of the Closing Purchase Price, plus a Post-Closing Purchase Price
Adjustment, if any, and any other amounts to be paid by it hereunder.
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4.6 Purchase for Investment. Buyer is purchasing the Shares for
investment for its own account and not with a view to, or for sale in connection
with, any distribution thereof. Buyer is an "accredited investor" within the
meaning of Rule 501 of the Securities Act of 1933, as amended, and (either alone
or together with its advisors) has had access to Seller and the Company and has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the Shares
and is capable of bearing the economic risks of such investment.
4.7 Brokers' Fees. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of Buyer who might be entitled to any fee or commission from Seller or any of
its Affiliates upon consummation of the transactions contemplated by this
Agreement.
ARTICLE 5
COVENANTS OF SELLER
Seller hereby covenants and agrees that:
5.1 Conduct of the Business. Except as contemplated by this
Agreement (including, without limitation, the Investment Portfolio Adjustments,
the transactions relating to, and the payment of, the Special Dividends and the
payments under the Tax Sharing Agreements), including the Schedules hereto, from
the date hereof until the Closing Date, Seller shall cause the Company and its
Subsidiaries to conduct the Business in all material respects in the ordinary
course consistent with past practice. Without limiting the generality of the
foregoing, from the date hereof until the Closing Date, except as set forth on
Schedule 5.1(c) hereto, Seller will not permit the Company or any of its
Subsidiaries to:
(a) adopt or propose any change in its certificate of
incorporation or bylaws;
(b) merge or consolidate with any other Person or acquire a
material amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any assets or
property having a value in excess of $5,000 except (i) pursuant to existing
contracts or commitments, (ii) in the ordinary course of the Business consistent
with past practices, or (iii) the furniture and equipment set forth on Schedule
5.1(c) hereof; or
(d) agree or commit to do any of the foregoing.
5.2 Access to Information. From the date hereof until the Closing
Date and subject to the terms of the Confidentiality Agreement, applicable legal
privileges and legal or contractual restrictions, Seller will (a) give, and will
cause the Company and its Subsidiaries to give, Buyer, its counsel, financial
advisors, auditors and other authorized representatives full access, upon
reasonable prior notice and during normal business hours, to the offices,
properties, books and records of the Company and each of its Subsidiaries and to
the books and records of Seller relating to the Company and its Subsidiaries,
(b) furnish, and will cause the Company and its Subsidiaries to furnish, to
Buyer, its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information relating
to the Company or any of its Subsidiaries as such Persons may reasonably request
and (c) instruct the employees, counsel and financial advisors of Seller or the
Company or any of its Subsidiaries to cooperate with Buyer in its investigation
of the Company or any of its Subsidiaries.
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5.3 Resignations. At or prior to the Closing Date, Seller will
deliver to Buyer the resignations of Bruce A. Esselborn, Mary Jane Robertson,
Kelly L. Stonebraker, and all other non-employee officers and directors of the
Company and its Subsidiaries from their positions with the Company or any of its
Subsidiaries.
5.4 Regulatory Matters. Seller, with Buyer's cooperation, will
promptly prepare and file all applications and notices to obtain the state
regulatory approvals specified on Schedule 3.3, and use all reasonable efforts
to process such applications and notices and obtain the requisite consents.
5.5 Release from Lenders. Seller will use all reasonable efforts to
cause the release of the pledged capital stock of the Company and its
Subsidiaries by, and any and all obligations of the Company and the Subsidiaries
to, Chemical Bank and the other lenders named in the Credit Agreement dated
March 29, 1994 among such lenders, Capsure Financial Group, Inc. and Parent (the
"Credit Agreement").
5.6 Audited Financial Statements. Within ten days following the date
of this Agreement, Seller shall deliver to Buyer the Audited Consolidated
Financial Statements, the Audited Statutory Financial Statements and the Audited
UCM Financial Statements, each of which shall be substantially similar to their
respective drafts previously furnished to Buyer.
5.7 Investment Portfolio Adjustments. Prior to the Closing Date,
Seller shall take such actions as is required to cause UCIC's Invested Assets to
conform to the description set forth in Section 2.2(d)(ii) of this Agreement.
5.8 Estimated UCM Financial Statements. At least five business days
prior to the Closing Date, Seller shall deliver, or cause to be delivered, to
Buyer, an unaudited balance sheet of UCM estimated as of the Closing Date, and
related statements of income and cash flows for the period January 1, 1996
through and including the Closing Date (on an estimated basis), prepared, except
as noted in Section 2.2(e)(ii) of this Agreement, (x) in accordance with GAAP
and (y) on a basis consistent with the audited balance sheet of UCM as of
December 31, 1995 included as part of the Audited UCM Financial Statements to be
delivered to Buyer pursuant to Section 5.6 hereof.
5.9 Case Reserves Files. At least five business days prior to the
Closing Date, Seller shall deliver, or cause to be delivered, to Buyer, a
schedule setting forth every case reserve file opened or closed and every change
in the estimate of case reserves of UCIC from January 1, 1996 through and
including a date not more than ten business days prior to the Closing Date.
5.10 Confidentiality. Seller will hold, and will use reasonable
efforts to cause its officers, directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by any judicial or administrative process or by other requirements of
law, all confidential documents and information concerning the Company or any of
its Subsidiaries provided to it pursuant to Section 6.2 or otherwise.
5.11 Intercompany Accounts. At least five business days prior to
the Closing, Seller shall prepare and deliver to Buyer a statement (the
"Intercompany Account Statement") setting forth in reasonable detail the
calculation of the intercompany account balances between Seller or any of its
Affiliates, on the one hand, and the Company and its Subsidiaries, on the other
hand, based upon the latest available financial information as of five business
days prior to such date and, to the extent requested in writing by Buyer,
provide Buyer with supporting documentation to verify the underlying
intercompany charges and transactions. All such intercompany account balances
(other than those under or relating to reinsurance contracts, agency agreements
and arrangements) shall be paid in full in cash at or prior to the Closing.
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5.12 Updated Schedules. No later than ten business days prior to
the Closing Date, Seller shall provide updated, amended and/or supplemental
Schedules to Buyer.
5.13 Estimated Adjusted Surplus. Prior to the Closing Date, Seller
shall use its reasonable efforts to cause Estimated Adjusted Surplus to be
$19,000,000.
5.14 Tangible Net Worth of UCM. The payment of the Special
Dividends shall not cause the net worth of UCM as reflected on the balance sheet
of UCM described in Section 5.8 above, after excluding excess cost over net
assets acquired, net of amortization ("Tangible Net Worth") to be less than such
Tangible Net Worth as calculated from the audited UCM balance sheet as of
December 31, 1995.
ARTICLE 6
COVENANTS OF BUYER
Buyer hereby covenants and agrees that:
6.1 Confidentiality. All information provided to Buyer or any of
the persons referred to in Section 5.2 hereof will be treated as if provided
under the confidentiality agreement dated as of September 29, 1995 by and
between Frontier Insurance Group, Inc. and Parent (the "Confidentiality
Agreement").
6.2 Post-Closing Access. Buyer will cause the Company and each of
its Subsidiaries, on and after the Closing Date, so long as Parent has
indemnification obligations to Buyer pursuant to Article 11 hereof, to afford
promptly to Seller and its agents and representatives full access, upon
reasonable prior notice and during normal business hours, to their offices,
properties, books, records, employees and auditors to the extent reasonably
necessary to permit Seller to determine any matter relating to its rights and
obligations hereunder or to any period ending on or before the Closing Date,
including, without limitation, in connection with the preparation of Tax Returns
and the Closing Financial Statements.
6.3 Regulatory Matters. Buyer, with Seller's cooperation will
promptly, and in any event no later than ten business days after the date
hereof, prepare and file all applications, notices, consents and other documents
necessary or advisable to obtain the state regulatory approvals specified in
Schedule 4.3, promptly file all supplements or amendments thereto and use all
reasonable efforts to obtain the regulatory approvals specified in Schedule 4.3
hereto as promptly as practicable. Buyer will provide Seller and its counsel
(a) the opportunity to review in advance and comment on all such filings with
regulatory authorities and rating agencies relating to this transaction and all
written communications with respect thereto a reasonable time prior to such
filings or written communications, (b) prompt notice of all contacts by such
regulatory authorities and rating agencies, and (c) with respect to any
regulatory approval or review required by any state other than Buyer's and
UCIC's states of domicile, the right to approve any filings, written
communications and the substance of any oral communications and to participate
in any meetings. Buyer will keep Seller informed of the status of matters
relating to obtaining the regulatory approvals specified in Schedule 4.3 hereto
and will promptly furnish Seller with copies of all written communications with
respect thereto.
6.4 Post-Closing Use of Office Space. To assist in an orderly
transition of ownership of the Business, Buyer shall permit each of Bruce A.
Esselborn, Mary Jane Robertson, Ronald D. Bobman and Vicki Hicks to continue to
use the office space currently occupied by them for a period of 60 days
following the Closing Date.
6.5 Agreement to Sublease. In the event Richard Weingarten &
Company ("Weingarten"), which currently occupies office space within the
Company's leased premises, is unable to enter into an
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independent lease with Taylor & Mathis, the landlord of such premises, on or
prior to the Closing Date with respect to such office space, Buyer hereby agrees
to cause the Company to enter into a sublease with Weingarten or any other
Person reasonably satisfactory to Buyer with respect to such space, on
substantially the same terms and conditions as are contained in the master
lease, with rent to be determined according to the pro rata portion attributable
to the space being sublet, and expiring on the expiration date of the initial
term of the master lease. Notwithstanding the foregoing, if Weingarten elects to
vacate such space on or before the Closing Date and gives Buyer written notice
thereof at least 30 days prior to the Closing Date, the requirement provided in
Section 10.2(b)(xi) shall be waived.
ARTICLE 7
COVENANTS OF BUYER AND SELLER
Buyer and Seller hereby covenant and agree that:
7.1 Necessary Assurances. Subject to the terms and conditions of
this Agreement, Buyer and Seller will use reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things reasonably
necessary or desirable under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. Seller and Buyer agree, and
Seller, prior to the Closing and Buyer, after the Closing, agree to cause the
Company and each of its Subsidiaries to execute and deliver such other
documents, certificates, applications, agreements and other writings and to take
such other actions as may be reasonably necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
7.2 Filings and Consents. Seller and Buyer shall cooperate with one
another (a) with respect to any filing with any governmental body, agency,
official or authority required in connection with this Agreement or the
consummation of the transactions contemplated by this Agreement, or any actions,
consents, approvals or waivers required to be obtained from parties to any
material contracts, in connection with this Agreement or the consummation of the
transactions contemplated by this Agreement and (b) in taking such actions or
making any such filings, furnishing information required in connection
therewith, timely seeking to obtain any such actions, consents, approvals or
waivers and Seller shall have the right to attend meetings with governmental
authorities or rating agencies in connection therewith.
7.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, subject
to any such party's disclosure obligations under applicable law or any
applicable listing agreement, manual, by-laws, rules or regulations of any
national securities exchange, will not issue any such press release or make any
such public statement prior to such consultation.
7.4 Post-Closing Reinsurance. Prior to the Closing Date, Seller
shall cause (a) UCIC and Western Surety Company ("Western Surety") to agree to
continue in full force and effect the Directors' and Officers' and Errors and
Omissions Liability Quota Share Reinsurance Agreement between Western Surety and
UCIC dated August 15, 1994 (the "Reinsurance Agreement") until the 61st day
following the Closing Date and granting UCIC the unilateral right to terminate
the Reinsurance Agreement at any time prior to the expiration date upon three
days' prior written notice, pursuant to the Termination Addendum with respect to
the Reinsurance Agreement to be delivered pursuant to Section 10.2(b)(ix)
hereof, and (b) Western Surety and UCM to agree to continue in full force and
effect the Managing General Agency Agreement dated October 29, 1992 between
Western Surety and UCM (the "MGA Agreement") until the 61st day following the
Closing Date and granting UCM the unilateral right to terminate the MGA
Agreement at any time prior to the expiration date upon three days' prior
written notice, pursuant to the Termination Addendum with respect to the MGA
Agreement to
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be delivered pursuant to Section 10.2(b)(ix) hereof, such MGA Agreement to be
amended to terminate the authority with respect to certain lines of business
reinsured under the Reinsurance Agreement, pursuant to Amendment No. 4 to the
MGA Agreement to be delivered pursuant to Section 10.2(b)(ix) hereof. Buyer
hereby agrees to cause UCIC to continue to manage, adjust and settle claims
under the policies reinsured under the Reinsurance Agreement consistent with
past practices, and shall use its reasonable efforts prior to and during the
60-day period following the Closing Date to replace Western Surety as the direct
insurer under all policies reinsured under the Reinsurance Agreement. Buyer
hereby agrees to save, indemnify and hold Seller and Western Surety harmless
from and against any Damages relating to policies issued by Western Surety
pursuant to the MGA Agreement and reinsured under the Reinsurance Agreement
subsequent to the Closing Date, or arising out of any actions taken by UCIC or
its Subsidiaries subsequent to the Closing Date with respect to the Reinsurance
Agreement or MGA Agreement, including all actions, suits, proceedings, claims,
demands, assessments, judgments, costs and expenses, including reasonable
outside attorneys' fees, incident to the foregoing.
7.5 Government Filings. Each of Buyer, Seller, the Company and its
Subsidiaries shall as soon as practicable, but no later than ten business days
following execution of this Agreement, make any and all filings required to be
made by it with any and all governmental authorities in connection with the
consummation of the transactions contemplated herein. Accordingly, and not in
limitation of the preceding sentence, Buyer, Seller and the Company shall
promptly file, after the execution of this Agreement, (a) the notification
required by the HSR Act and any requested or supplementary filings required
pursuant to the HSR Act in such manner and at such places as are specified in
the HSR Act and the applicable rules and regulations thereunder, and (b) any
other notifications or requests, including the filing by the Buyer at its
expense of an application for authority to acquire control of the Company and
its Subsidiaries with the insurance authorities of the jurisdictions specified
on Schedule 4.3 hereto. Buyer and Seller equally shall pay the fee due in
connection with the filing of the notification required under the HSR Act. Each
party shall furnish the other party with any information, certificates and other
documents in a timely manner and shall cooperate with the other party in all
reasonable ways necessary to effect such filings.
7.6 Closing Statements. Buyer and Seller shall cooperate, use
reasonable efforts and act in good faith in the preparation and delivery, each
on a timely basis, of the Closing Statements in accordance with Section 2.3(a)
hereof.
7.7 Termination Notices. Until six months after the Closing Date,
Buyer shall cause the Company to use its reasonable efforts, with Seller's
cooperation to the extent required, to cure any Termination Notices received
prior to the Closing Date.
ARTICLE 8
TAX MATTERS
8.1 Buyer Tax Covenants. (a) Buyer covenants that it will not
cause or permit the Company, any Subsidiary or any Affiliate of Buyer to (i)
make any election or deemed election under Section 338 of the Code or (ii) amend
any Tax Returns for any Pre-Closing Tax Periods.
(b) Buyer agrees to cause the Company and its Subsidiaries to
elect, where permitted by law, to carry forward any net operating loss or other
item arising after the Closing Date that would, absent such election, be carried
back to a Pre-Closing Tax Period of the Company or a Subsidiary which filed a
consolidated, combined or unitary Tax Return with Seller or an Affiliate of
Seller.
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(c) Buyer shall promptly pay or shall cause prompt payment to
be made to Parent of (i) the amount of any reduction of Tax liability
attributable to the carryover of any net operating loss or capital loss, and
(ii) all refunds of Taxes and interest thereon realized or received,
respectively, by Buyer, any Affiliate of Buyer, the Company or any of its
Subsidiaries, attributable to Taxes paid by or on behalf of Seller, the Company
or any of its Subsidiaries, whether pursuant to the Tax Sharing Agreements or
otherwise, with respect to any Pre-Closing Tax Period.
(d) All transfer, documentary, sales, use, stamp, registration
and other such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement (including any state real property transfer and
gains taxes, city real property transfer tax and any similar tax imposed in
other states or subdivisions) shall be borne and paid by Buyer and Buyer will,
at its own expense, file all necessary Tax Returns and other documentation with
respect to all such Taxes and fees if required by applicable law.
8.2 Property and Casualty Loss Discount Determination. Seller shall
determine the provision for discounted unpaid losses of the Company and its
Subsidiaries under Sections 832(b)(5) and 846 of the Code for all Pre-Closing
Tax Periods, provided that such determination shall be made in a manner
consistent with past practice of the Company and its Subsidiaries and in
compliance with the Code.
8.3 Termination of Tax Sharing Agreements. The Tax Sharing
Agreements between the Company and its Subsidiaries and any member of the Seller
Group shall be terminated as of the Closing Date. Subject to Sections 8.1(c)
and 8.4 hereof, after the Closing Date neither the Company and its Subsidiaries,
Seller nor any Affiliate of Seller shall have any further rights or liabilities
thereunder.
8.4 Tax Sharing. Immediately preceding the Closing, the Company and
each of its Subsidiaries shall pay to Seller and Seller shall pay to Parent the
amount, with respect to all Pre-Closing Tax Periods for which no Tax Return has
yet been filed, required by the Tax Sharing Agreements and, with respect to
pre-Closing interim periods not required by the Tax Sharing Agreements,
estimated in accordance with the provisions of the Tax Sharing Agreements, or
determined in accordance with principles comparable thereto, based upon Seller's
good faith estimates, as of the Closing Date, of the consolidated Tax liability
of the Company and its Subsidiaries, and reduced by the amount of any payments
on account of such Taxes previously paid to Seller.
8.5 Cooperation on Tax Matters. Buyer and Seller agree to furnish
or cause to be furnished to each other, upon request, as promptly as
practicable, such information (including access to books and records) and
assistance relating to the Company or its Subsidiaries as is reasonably
necessary (i) for the filing of any Tax Return, (ii) for the verification of any
amounts due in accordance with Section 8.1(c), (iii) for the preparation for any
audit and (iv) for the prosecution or defense of any claim, suit or proceeding
relating to any proposed adjustment. Buyer and Seller agree to retain or cause
to be retained all books and records pertinent to the Company or its
Subsidiaries (such books and records not limited solely to Tax accounting books,
records and work papers) until the applicable period for assessment under
applicable law (giving effect to any and all extensions or waivers and to the
period of Tax indemnification provided in this Agreement) has expired, and to
abide by or cause the abidance with all record retention agreements entered into
with any Taxing Authority. Buyer agrees, and after the Closing shall cause the
Company and its Subsidiaries, to give Seller reasonable notice prior to
transferring, discarding or destroying any such books and records and, if Seller
so requests, the Company and its Subsidiaries shall allow Seller to take
possession of such books and records. Buyer and Seller shall notify each other
in writing of, and cooperate with each other in the conduct of, any claim,
audit, examination or other proceeding or proposed change or other adjustment
involving the Company and its Subsidiaries for any Tax purposes and each shall
execute and deliver such other documents as are necessary to carry out the
intent of this Section 8.5.
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8.6 Responsibility for Taxes and Tax Returns. Except as expressly
provided otherwise in this Article 8, Seller is responsible for all Taxes, and
for preparing and filing all Tax Returns, with respect to the Company and its
Subsidiaries, for all periods commencing prior to and ending on the Closing
Date, and Buyer is so responsible for all periods commencing on the Closing Date
and ending thereafter.
8.7 Intentionally omitted.
8.8 Apportionment. For any Tax period that begins on or before and
ends after the Closing Date (a "Straddle Period"), for purposes of apportioning
a Tax to the portion of such Tax period that ends on the Closing Date, (i) the
parties shall treat the Closing Date as the last day of such period, and (ii)
the Tax for the Tax period that is allocable to the portion of the Tax period
ending on the Closing Date shall be (A), in the case of a Tax that is not based
on income or gross receipts, the total Tax for the Straddle Period multiplied by
a fraction, the numerator of which is the number of days in the Tax period
ending on (and including) the Closing Date and the denominator of which is the
total number of days in the Straddle Period, and (B), in the case of a Tax that
is based on income or gross receipts, the Tax that would be due with respect to
the period ending on (and including) the Closing Date, based on actual
operations of the Company and its Subsidiaries during such period as shown on
their permanent books and records.
ARTICLE 9
EMPLOYEE BENEFITS
9.1 Individual Account Plans. Prior to the Closing Date, Seller
shall cause the sponsorship of the Pension Plan to be transferred to and assumed
by Parent. Seller shall take such action as may be necessary (not including the
termination of the Pension Plan and/or Parent 401(k) Plan), to permit each
Employee to elect within a reasonable period of time following the Closing Date,
an immediate distribution of the vested balance of such Employee's respective
accounts under the Pension Plan and the Parent 401(k) Plan or to effect a
tax-free rollover (a "Direct Rollover") of the taxable portions of the
respective account balances into the 401(k) Plan maintained for the employees of
Frontier Insurance Group, Inc. and its subsidiaries, which constitutes an
eligible retirement plan within the meaning of Section 401(a)(31) of the Code
(the "Frontier 401(k) Plan"), and Buyer shall cooperate with Seller in its
efforts to permit such election; provided, however, that nothing contained
herein shall obligate the Frontier 401(k) Plan to accept a Direct Rollover in a
form other than cash. If, in the opinion of counsel for Seller, a distribution
or Direct Rollover of the Employees' respective accounts under the Pension Plan
and/or Parent 401(k) Plan could adversely affect the qualification of such
Plan(s) under Section 401 of the Code unless such Plan(s) were terminated or, in
the opinion of counsel to Buyer, such Direct Rollover could adversely affect the
qualification of the Frontier 401(k) Plan under Section 401 of the Code, then at
Buyer's election, either the account balances of all Employees participating in
such Plan(s) who cease to be covered by virtue of the transaction contemplated
hereunder will be transferred to the Frontier 401(k) Plan by means of a direct
trustee-to-trustee transfer in a manner consistent with Sections 411(d)(6) and
414(l) of the Code, or the account balances of such Employees will be retained
in the Pension Plan and/or Parent 401(k) Plan and such Employees will thereafter
be treated as inactive participants, and such distribution or Direct Rollover
shall be accomplished with respect to the Employees when it is permissible, in
the opinion of such counsel.
9.2 Plans Following the Closing. (a) Following the Closing, the
Employees will be entitled to participate in the employee plans and benefit
arrangements generally available to employees of Frontier Insurance Group, Inc.
and its subsidiaries and, for purposes of eligibility, vesting and pre-existing
medical conditions thereunder (but not for benefit accrual purposes), will be
given full credit, as applicable, for services recognized for such purposes
under the Employee Plans and Benefit Arrangements.
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(b) For a period of one year from the Closing Date, the
Employees (other than Employees party to change in control agreements assumed by
Buyer) will be entitled to the more favorable of the following severance
arrangements: (i) the Company's current severance arrangement, consisting of
severance payment of two weeks' salary for non-management-level employees and
four weeks' salary for management-level employees upon termination of
employment; and (ii) the standard severance arrangement available to employees
of Frontier Insurance Group, Inc. and its subsidiaries.
(c) Buyer shall cause UCIC and its Subsidiaries to pay their
respective employees, in December 1996, an aggregate of $200,000 in special cash
bonuses (in addition to bonuses or compensation, if any, which such employees
are otherwise entitled to receive as employees of the Company and its
Subsidiaries at such time), which shall be distributed in accordance with
written instructions to be furnished by Seller to Buyer not later than ten days
prior to the Closing Date. In the event any person designated to receive such a
special cash bonus is not employed by the Company or its Subsidiaries at the
date of distribution, such person's special cash bonus shall be distributed per
capita to all other distributees.
ARTICLE 10
CONDITIONS TO CLOSING
10.1 Conditions to Obligations of Buyer and Seller. The obligations
of Buyer and Seller to consummate the transactions contemplated hereunder at the
Closing are subject to the satisfaction or waiver by both parties of the
following conditions:
(a) any applicable waiting period under the HSR Act relating to
the transactions contemplated hereby shall have expired or been terminated;
(b) no action or proceeding shall have been instituted before
any court or instituted or threatened by any governmental agency to restrain or
prohibit, or to obtain damages in respect of, this Agreement, or the
consummation of the transactions contemplated by this Agreement;
(c) all regulatory approvals set forth in Schedule 3.3 and
approvals from insurance authorities in the jurisdictions set forth in Schedule
4.3 and any other regulatory approvals requested of Buyer or its Affiliates
after the date of this Agreement in a written notice received from any other
State in which an insurance company Affiliate of Buyer is domiciled and
necessary for the execution and performance of this Agreement shall have been
obtained and be in full force and effect and without conditions or limitations
which unreasonably restrict the ability of the parties hereto to perform this
Agreement or the Company's or any of its Subsidiaries' ability to conduct their
respective businesses as presently conducted and Buyer and Seller shall have
been furnished with appropriate evidence, reasonably satisfactory to them and
their respective counsel, of the granting of such consents and approvals.
(d) neither Buyer, the Company nor its Subsidiaries shall have
received written notice from any state commissioner of insurance of the states
in which the Company or its Subsidiaries conduct business that such state will
seek to terminate the authority of the Company and its Subsidiaries to conduct
business in such state following the Closing (a "Termination Notice"); provided,
however, that no failure of this condition shall be deemed to have occurred if a
Termination Notice is received with respect to (i) any state in which Frontier
Pacific Insurance Company ("Frontier Pacific") has authority to act as an excess
and surplus lines insurer as set forth in Schedule 10.1(d) hereof or (ii) any
state not described in clause (i) above in which UCIC's direct written premiums
in 1995 (as set forth in Schedule T of UCIC's 1995 Statutory Annual Statement)
did not exceed $200,000, provided that UCIC's direct written premiums in 1995
(as set forth in such Schedule T) from
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all states for which a Termination Notice has been received and which are not
described in clause (i) above did not, in the aggregate, exceed $700,000.
10.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transactions contemplated hereunder at the Closing is subject to
the satisfaction or waiver by Buyer of the following further conditions:
(a) (i) Seller shall have performed, in all material respects,
all of its obligations hereunder required to be performed by it on or prior to
the Closing Date, (ii) the representations and warranties and covenants of
Seller contained in this Agreement shall be true and correct at and as of the
Closing Date, as if made at and as of such date, except for any inaccuracies in
any such representations and warranties which have not had a Material Adverse
Effect on the Company, and (iii) Buyer shall have been delivered a certificate
signed by the Chief Financial Officer of Seller and the Controller of the
Company, certifying the information in subsections (i) and (ii) hereof.
(b) Buyer shall have received the following deliveries from
Seller:
(i) certificates of good standing (or comparable
documents) for the Company (long-form with a statement as to the payment of
franchise taxes from the State of Delaware) and each of its Subsidiaries
from their respective States of incorporation, and certificates of good
standing (or comparable documents) as foreign corporations in each
jurisdiction where the Company and its Subsidiaries are so qualified, in
each case issued as of a date not more than fourteen days prior to the
Closing Date;
(ii) a Secretary's certificate of Seller certifying as to
the incumbency of Seller's authorized officers, genuineness of their
respective signatures and validity and effectiveness of attached copies of
the Company's certificate of incorporation, by-laws and authorizing
corporate resolutions;
(iii) an opinion of counsel to Seller, addressed to Buyer,
substantially in the form attached as Exhibit A hereto;
(iv) an opinion of counsel to Parent, addressed to Buyer,
as to the authorization and enforceability of Section 2.3(c) and Article 11
hereof with respect to Parent, substantially in the form attached as
Exhibit B hereto;
(v) evidence reasonably satisfactory to Buyer that the
Company and its Subsidiaries have been released of any and all obligations
under the Credit Agreement;
(vi) non-competition/non-solicitation agreements executed
by Parent and Bruce A. Esselborn substantially in the forms attached as
Exhibit C-1 and Exhibit C-2 hereof, and a non-solicitation agreement
executed by Mary Jane Robertson substantially in the form attached as
Exhibit C-3 hereto;
(vii) a signed letter from Tillinghast substantially in the
form attached as Exhibit D hereto, to be furnished at Buyer's expense;
(viii) the resignations specified in Section 5.3 hereof;
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(ix) executed copies of the Termination Addendum with
respect to the Reinsurance Agreement substantially in the form attached as
Exhibit E-1 hereto, Amendment No. 4 to the MGA Agreement substantially in
the form attached as Exhibit E-2 hereto, the Termination Addendum with
respect to the MGA Agreement, substantially in the form attached as Exhibit
E-3 hereto, and the Termination Addendum with respect to the Surety Bond
Quota Share Reinsurance Agreement effective September 1, 1992 between
Western Surety and UCIC substantially in the form attached as Exhibit E-4
hereto;
(x) evidence reasonably satisfactory to Buyer of the
termination of (A) the Tax Sharing Agreements pursuant to Section 8.3
hereof, and (B) the Service Agreement dated January 1, 1993 between Parent
and UCIC; and
(xi) a signed letter from Equity Group Investments, Inc.
with respect to certain matters relating to Section 6.5 hereof,
substantially in the form attached as Exhibit F hereto.
(c) Except as disclosed in Schedule 3.9 hereto, since the
Balance Sheet Date, there has not been any event, occurrence, development or
state of circumstances or facts which has had a Material Adverse Effect on the
Company other than those resulting from (i) changes in general conditions
applicable to the property and casualty insurance industry (excluding changes in
statutes and regulations applicable to UCIC) or changes in general economic
conditions, (ii) the Investment Portfolio Adjustments and the transactions
relating to, and the payment of, the Special Dividends, and (iii) any payments
pursuant to the Tax Sharing Agreements.
(d) The capital stock of the Company and its Subsidiaries shall
be free and clear of all Liens.
(e) UCIC shall have maintained a rating by A.M. Best & Co. of
"A-" ("A Minus") or better from the date of this Agreement through and including
one business day prior to the Closing Date. For purposes hereof, any notice
that UCIC's rating is under review, whether with or without negative
implications, by A.M. Best & Co. shall not constitute a downgrade below A Minus.
10.3 Conditions to Obligation of Seller. The obligation of Seller
to consummate the transactions contemplated hereunder at the Closing is subject
to the satisfaction or waiver by Seller of the following further conditions:
(a) (i) Buyer shall have performed, in all material respects,
all of its obligations hereunder required to be performed by it at or prior to
the Closing Date; provided, however, that the obligation to pay to Seller the
Closing Purchase Price and any other amounts hereunder shall be without
qualification of any kind; (ii) the representations and warranties of Buyer
contained in this Agreement shall be true and correct at and as of the Closing
Date, as if made at and as of such date, except for any inaccuracies in any such
representations and warranties which have not had a Material Adverse Effect on
Buyer, and (iii) Seller shall have received a certificate signed by the Chief
Financial Officer (or equivalent officer) of Buyer to the foregoing effect.
(b) Seller shall have received from Buyer the following:
(i) an executed Assignment and Assumption of Executive
Change In Control And Termination Benefits Agreement substantially in the
form attached as Exhibit G hereto, providing for the assumption by Buyer of
the obligations of the Executive Change in Control and Termination Benefits
Agreements previously furnished to Buyer, provided that the transaction
bonus payments thereunder have been paid by Parent;
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(ii) a Secretary's certificate of Buyer certifying as to
the incumbency of Seller's authorized officers, genuineness of their
respective signatures and validity of and effectiveness of attached copies
of the Company's certificate of incorporation, by-laws and authorizing
corporate resolution;
(iii) an opinion of counsel to Buyer, addressed to Seller,
substantially in the form attached as Exhibit H hereto;
(iv) an officer's certificate of Frontier Pacific or Buyer
certifying the states in which Frontier Pacific has authority to act as an
excess and surplus lines insurer as of the Closing Date; and
(v) executed Assignments of Employment Agreement and
Guaranty substantially in the forms attached as Exhibit I-1 and Exhibit I-2
hereto.
(c) Seller, the Company or its Subsidiaries, as the case may
be, shall have received all approvals from all state commissioners of insurance
of the states in which the Company and its Subsidiaries conduct the Business
that any of the Company and its Subsidiaries is required by applicable law or
regulation to obtain or provide in connection with the Special Dividends, all in
amount, form and substance acceptable to Seller.
ARTICLE 11
SURVIVAL; INDEMNIFICATION
11.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of Seller set forth in Article 3 hereof, and of
Buyer set forth in Article 4 hereof, shall survive the Closing, as follows: (a)
the representations and warranties of Seller set forth in Sections 3.5, 3.6 and
3.7(b), and the representations and warranties of Buyer in Section 4.6 hereof
shall survive the Closing without limitation, (b) the representations and
warranties of Seller contained in Section 3.22 and the covenants and agreements
set forth in Section 5.10 and Article 8 hereof shall survive until the
applicable statutes of limitations have expired, and (c) all other
representations and warranties set forth in Articles 3 and 4 hereof and, unless
expressly provided otherwise in this Agreement, the covenants and agreements
contained in Article 9 hereof shall survive the Closing for a period of one year
following the Closing Date. Except as set forth above, no covenant or indemnity
contained in this Agreement shall survive (i) the Closing unless the express
terms of such covenant or agreement provide for performance or effect after the
Closing; or (ii) after the time at which it would otherwise terminate pursuant
to the preceding clause (i), unless notice of the breach thereof shall have been
given to the party against whom such indemnity may be sought prior to such time.
11.2 Indemnification by Parent. Parent agrees to save, indemnify
and hold Buyer and, effective after the Closing Date but without duplication,
the Company and its Subsidiaries, harmless from and against:
(a) any and all actual loss, liability or damage (collectively,
"Damages") resulting from any misrepresentation or breach of warranty by Seller
or non-fulfillment of any covenant or condition to be performed or complied with
by Seller under the terms of this Agreement or as a result of any Litigation set
forth on Schedule 3.11, or as a result of the receipt of any Termination Notices
subject, however, to the cure period in Section 7.7 hereof and excluding,
however, any Damages resulting from the termination or demotion of any Employee
after the Closing Date;
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(b) any and all Damages directly resulting from the failure by
Seller and, prior to the Closing Date, the Company or any of its Subsidiaries,
to substantially perform their respective obligations pursuant to Section 9.1;
(c) (i) any and all Taxes with respect to any Pre-Closing
Period resulting from the Company or its Subsidiaries ceasing to be included in
the consolidated Federal income Tax Return filed by Seller Group including,
without limitation, any Taxes attributable to the restoration of a "deferred
intercompany transaction" within the meaning of Treasury Regulations Section
1.1502-13 (a)(2), and the recognition of excess loss accounts;
(ii) any and all unpaid Federal, state, local, or foreign
Taxes imposed on the Company or its Subsidiaries directly or indirectly,
whether determined on a separate, consolidated, combined, unitary, or group
basis, (A) pursuant to Treasury Regulation Section 1.1502-6 or any
comparable provisions of state, local, or foreign law by reason of the
Company or its Subsidiary having been a member of a consolidated, combined,
unitary, or group Tax Return during any Pre-Closing Taxable Period, or (B)
pursuant to any guaranty, indemnification, or similar agreement made on or
before the Closing Date relating to the sharing of liability for, or
payment of, Taxes, or (C) arising out of, resulting from, or attributable
to any transaction contemplated by this Agreement to be performed by Seller
or, prior to the Closing Date, by the Company or its Subsidiaries;
(iii) any (x) Tax of the Company and its Subsidiaries and
(y) liabilities, costs, expenses (including, without limitation, reasonable
expenses of investigation and outside attorneys' fees and expenses),
arising out of or incident to the imposition, assessment or assertion of
any Tax, including those incurred in the contest of good faith in
appropriate proceedings relating to the imposition, assessment or assertion
of any Tax, in each case with respect to any Pre-Closing Tax Period and in
each case incurred or suffered by Buyer, any of its Affiliates or,
effective upon the Closing, the Company and its Subsidiaries (the sum of
paragraphs (i) and (ii) above and clauses (x) and (y) of this paragraph
(iii) being referred to as a "Tax Loss"); provided, however, that Parent
shall have no liability for any Tax Loss attributable to or resulting from
any action described in Section 8.1(a) hereof, including, but not limited
to, an election made or deemed made by Buyer under Section 338 of the Code
or any comparable provision of applicable law. In the event Parent's
indemnification obligation under this Section 11.2(c) arises in respect of
an adjustment which makes allowable to Buyer, any of its Affiliates or,
effective upon the Closing, the Company or any of its Subsidiaries, a Tax
Benefit which would not, but for such adjustment be allowable, then Buyer
shall reimburse Parent for such Tax Benefit when and if realized; and
(d) all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable outside
attorneys' fees, incident to the foregoing.
(e) Notwithstanding the foregoing, Parent shall not be liable
under Section 11.2(c) for (i) any Tax the payment of which was made without
Parent's prior written consent or (ii) any settlements effected without the
consent of Parent, not to be unreasonably withheld, or resulting from any claim,
suit, action, litigation or proceeding in which Parent was not permitted an
opportunity to participate.
11.3 Indemnification by Buyer. Buyer agrees to save, indemnify and
hold Seller harmless from and against:
(a) any and all Damages resulting from any misrepresentation or
breach of warranty by Buyer or non-fulfillment of any covenant or condition to
be performed or complied with by Buyer under the terms of this Agreement;
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(b) any Tax or any reduction in the value of any net operating
loss carryover, Tax credit deduction, recovery of Tax or deferred Tax asset
resulting from any action referred to in Section 8.1(a) hereof, of the Company
and its Subsidiaries, Buyer or any Affiliate of Buyer; and
(c) all actions, suits, proceedings, claims, demands,
assessments, judgments, costs and expenses, including reasonable outside
attorneys' fees, incident to the foregoing.
11.4 Terms of Indemnification. The foregoing indemnification
obligations are subject to the following:
(a) Limitations on Time Periods and Amounts.
(i) No party hereto shall be required to indemnify another
party pursuant to the foregoing unless the party claiming the right to be
indemnified promptly notifies the other party of facts which are the basis
for indemnification hereunder specifying in reasonable detail the basis of
any such claim ("Notice") pursuant to this Article 11 on or before the
expiration or termination of such representation, warranty, covenant or
agreement. If, after the Closing Date and prior to the close of business
on the date any representation, warranty or covenant ceases to survive, the
indemnifying party shall have received the written Notice and such claim
shall not have been finally resolved or disposed of at such date, such
claim shall continue as a basis for indemnity until it is finally resolved
or disposed of, subject to applicable statutes of limitation. If the
recipient of the Notice desires to dispute such claim, it shall, within 30
days after notice of the claim of loss against it is given, give a
counternotice, setting forth the basis for disputing such claim, to Buyer
or Parent, as the case may be. If no such counternotice is given within
such 30-day period, or if Buyer or Parent, as the case may be, acknowledges
liability for indemnification, then such loss shall be promptly satisfied.
The amount of any indemnification for Damages recoverable from Parent under
this Agreement shall be reduced by the amount of any reserve,
contra-liability or other provision for such Damages reflected in the
Closing Statements. In the event that Damages arise as a result of new or
corrected disclosures set forth in updated Schedules furnished to Buyer
after the date hereof which are not reflected in the Closing Statements,
then 70% of such Damages shall be indemnifiable by Parent hereunder if the
updated Schedules do not correct disclosures in the Schedules delivered as
of the date of this Agreement, and 100% of such Damages shall be so
indemnifiable if such updated Schedules correct the disclosures in the
Schedules delivered as of the date of this Agreement. Notwithstanding
anything to the contrary in this Agreement and subject to the provisions of
Sections 11.4(a)(ii) and 11.6 below, except for liability for a breach of
the representations set forth in Sections 3.5, 3.6, 3.7(b) and 3.22 hereof,
and a breach of the covenants set forth in Sections 8.6 and 11.2(c) hereof,
Buyer shall not be entitled to recover under rights to indemnification
hereunder until the aggregate Damages suffered by Buyer in respect of all
such claims exceed $300,000 (such amount being referred to herein as the
"Basket"), at which time Buyer shall be entitled to indemnification for all
such Damages, including the Basket; and in no event shall any party hereto
be entitled to consequential or punitive damages or damages for lost
profits in any action under this Agreement or relating to the subject
matter hereof. The maximum aggregate liability of Parent and Seller to
Buyer pursuant to this Article 11 for all Damages suffered by Buyer, and
all other expenses, Taxes and other amounts indemnifiable by Parent to
Buyer under this Article 11, is $7,500,000.
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(ii) Notwithstanding anything to the contrary contained in
Section 11.4(a)(i) above, the Basket shall not be applicable to (x) Tax
Losses and (y) Damages that arise in connection with the EEOC claim set
forth on Schedule 3.11 and the receipt of Termination Notices. For
purposes of this Agreement, Damages from the receipt of Termination Notices
shall be deemed to be the following: for each state for which a Termination
Notice is received, 50% of Buyer's expenses incurred in connection with
curing such Termination Notice (subject to a maximum of $25,000 per state
in expenses), to be increased to 15% of UCIC's direct written premiums in
1995 in such state (as set forth in Schedule T of UCIC's 1995 Statutory
Annual Statement) in the event such Termination Notice is not cured within
six months following the Closing Date ("Liquidated Damages"); provided,
however, that Parent shall be entitled to a credit against such Liquidated
Damages for the amount of Buyer's expenses reimbursed by Seller.
(b) Arbitration. If, within thirty (30) days after giving the
counternotice by Buyer or Parent, as the case may be, Parent and Buyer shall not
have reached agreement as to the claim in question, then the claim for
indemnification may be submitted to and settled by arbitration as hereinafter
provided. Arbitration shall be by a single arbitrator experienced in the
matters at issue selected by Parent and Buyer in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The meeting of the
arbitrator shall be held in Atlanta, Georgia and shall be conducted in
accordance with, but not under the auspices of, the Commercial Arbitration Rules
existing at the date thereof of the American Arbitration Association to the
extent not inconsistent with this Agreement. The decision of the arbitrator
shall be final and binding as to any matters submitted to such arbitrator under
this Agreement, and to the extent this decision is that a loss has been suffered
for which either party is to be indemnified under this Agreement, it shall be
promptly satisfied; provided, however, that, if necessary, such decision and
satisfaction procedure may be enforced by either Buyer or Parent in any court of
record having jurisdiction over the subject matter or over any of the parties
hereto. All costs and expenses incurred in connection with any such arbitration
proceeding shall be borne by the party against whom the decision is rendered or,
if no decision is rendered or if the decision is a compromise, equally by Buyer
and Parent.
(c) Satisfaction of Damages. Any Damages suffered by Seller
and Parent or Buyer, as the case may be, for which it is to be indemnified
hereunder shall be paid promptly by the indemnifying party.
(d) Notice and Right to Contest.
(i) Upon obtaining knowledge of the institution or threat
of any action, proceeding or other event by a third party which could give
rise to a claim of indemnity under Section 11.2 or 11.3 hereof ("Third
Party Claim"), the party seeking indemnification shall promptly notify the
indemnifying party of such claim.
(ii) The provisions of this Section 11.4(d)(ii) shall apply
to any Third Party Claim (other than those under Section 11.4(d)(iv) hereto
relating to Taxes), for which the indemnifying party is liable hereunder.
The indemnifying party shall have the right, at the indemnifying party's
expense to defend such claim or demand. Any defense undertaken by the
indemnifying party hereunder shall not be deemed an admission by the
indemnifying party and may be subject to a reservation of rights as to the
indemnified party's rights to indemnification pursuant to this Article 11.
If the indemnifying party fails to notify the indemnified party of its
election to defend such Third Party Claim within 30 days after notice
thereof was given to the indemnifying party, the indemnifying party shall
be deemed to have waived its right to defend such Third Party Claim. If
the indemnifying party elects to defend such Third Party Claim, it shall
not be responsible for attorney's fees incurred by the indemnified party;
provided, however, that the indemnified party may participate in such
defense at its own cost and expense. So long
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as the indemnifying party is defending such Third Party Claim in good
faith, the indemnified party will not settle such claim or demand without
the indemnifying party's consent, which consent shall not be unreasonably
withheld. The indemnified party shall make available to the indemnifying
party all records and other materials and employees reasonably required by
it in contesting a Third Party Claim and shall cooperate in the defense
thereof.
(iii) If with respect to any claim for indemnification under
this Article 11 the indemnified party refuses to consent to any settlement
recommended by the indemnifying party and the indemnified party elects to
contest or continue any dispute or legal proceedings in connection with
such claim, then in connection with such claim (x) the indemnifying party's
liability for all Damages, including all costs of defense, plus any later
settlements or Damage awards arising from such claim, shall not exceed the
amount for which the claim could have been settled (the "Recommended
Settlement"), and the indemnified party (y) shall assume all costs of
defense reasonably incurred by the indemnifying party after the date of
such refusal in contesting or continuing any dispute or legal proceedings
and (z) shall hold the indemnifying party harmless from all amounts in
excess of the Recommended Settlement.
(iv) Notwithstanding the foregoing Section 11.4(d)(ii), if
any claim or demand for Taxes in respect of which indemnity may be sought
pursuant to this Section 11.4(d)(iv) is asserted in writing against Buyer,
any of its Affiliates or, effective upon the Closing, the Company and its
Subsidiaries, Buyer shall notify Parent of such claim or demand within 10
days of receipt thereof, or such earlier time that would allow Parent to
timely respond to such claim or demand, and shall give Parent such
information with respect thereto as Parent may reasonably request. Parent
may discharge, at any time, its indemnification obligation under this
Section 11.4(d)(iv) by paying to Buyer the amount of the applicable Tax
Loss, calculated on the date of such payment. Parent may, at its own
expense, participate in and, upon notice to Buyer, assume the defense of
any such claim, suit, action, litigation or proceeding (including any Tax
audit), provided, however, that Parent shall not agree to any settlement of
an issue without the consent of Buyer, which consent shall not be
unreasonably withheld, to the extent that such settlement would have an
adverse effect, with respect to any Taxes which are the responsibility of
Buyer hereunder, on the Company or its Subsidiaries after the Closing Date.
Any defense undertaken by the indemnifying party hereunder shall not be
deemed an admission by the indemnifying party and may be subject to a
reservation of rights as to the indemnified party's rights to
indemnification pursuant to this Article 11. If Parent assumes such
defense, Buyer shall have the right (but not the duty) to participate in
the defense thereof and to employ counsel, at its own expense, separate
from the counsel employed by Parent. Whether or not Parent chooses to
defend or prosecute any claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof.
11.5 Exclusive Remedy. The provisions of this Article 11 are the
exclusive remedy of any party to this Agreement against any other party to this
Agreement (excluding the Parent non-competition/non-solicitation agreement
delivered pursuant to Section 10.2(b)(vi) hereof) for any claim for breach of
any covenant, agreement, representation, warranty or other provision of this
Agreement or any agreement, certificate or other document delivered hereto by
any party to this Agreement (other than a claim for specific performance or
injunctive relief or a claim based upon intentional fraud) with the intent that
all such claims shall be subject to the limitations and other provisions
contained in this Article 11.
11.6 Damages Net of Insurance, Etc. The amount of any Damages or
Tax for which indemnification is provided under this Agreement shall be net of
any amounts actually recovered by any party seeking indemnification under this
Agreement (the "Indemnified Party"), and shall be net of any amounts recoverable
under insurance policies or reinsurance agreements, proceeds from indemnity,
contribution or recoveries from Third Party Actions, with respect to such
Damages or Tax and shall be reduced by any Tax Benefit arising from the
incurrence or payment of any such Damages or Tax by the Indemnified Party. Any
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indemnity payment by Parent to Buyer under Article 11 shall be treated as an
adjustment to Buyer's basis in the Shares unless such treatment would be
inconsistent with any Final Determination governing such treatment, in which
case Parent shall also indemnify Buyer for any increase in liability for Taxes
that is imposed on Buyer, the Company, and/or any Subsidiary, which is
attributable to the indemnity payment or other payment made by Parent being
treated as currently taxable. Buyer and/or its Subsidiaries shall not be a
party to any such Final Determination without the written approval of Seller
which approval shall not be unreasonably withheld.
ARTICLE 12
TERMINATION
12.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual written agreement of Seller and Buyer; or
(b) by either Seller or Buyer if the Closing shall not have
been consummated on or before June 30, 1996; or
(c) by Buyer within five business days following receipt of
updated Schedules pursuant to Section 5.12 hereof containing new or corrected
information which would reasonably be expected to have a Material Adverse Effect
on the Company.
The party desiring to terminate this Agreement shall give written
notice of such termination to the other party.
12.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 12.1, termination shall be without liability of either
party (or any stockholder, director, officer, employee, agent, consultant or
representative of such party) to the other party to this Agreement, except that
no such termination shall relieve Buyer of its obligations under Section 6.1.
The provisions of Sections 6.1, 7.3, this Section 12.2 and Section 13.4 shall
survive any termination hereof pursuant to Section 12.1.
ARTICLE 13
MISCELLANEOUS
13.1 Notices. Any notices hereunder shall be in writing and shall
be deemed to have been given when delivered by hand or when transmitted by
facsimile transmission, the first business day after sent by a
nationally-recognized overnight courier (such as Airborne or Federal Express),
or on the fifth business day after deposit in the United States Mail, registered
or certified, return receipt requested, postage prepaid, addressed to:
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if to Buyer, to:
Mr. Walter A. Rhulen, President
Frontier Insurance Group, Inc.
195 Lake Louise Marie Road
Rock Hill, New York 12775
Fax: (914) 796-1900
with a copy to:
Sidney Todres, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Fax: (212) 661-0989
if to Seller, to:
Bruce A. Esselborn, President
Capsure Holdings Corp.
Two N. Riverside Plaza
Suite 1600
Chicago, Illinois 60606
Fax: (312) 454-1819
with a copy to:
Kelly L. Stonebraker, Esq.
Rosenberg & Liebentritt, P.C.
Two N. Riverside Plaza
Suite 1515
Chicago, Illinois 60606
Fax: (312) 454-0335
or at such other address, or facsimile number or to the attention of such other
person as Buyer or Seller may designate by written notice to the other party
hereto. Notice by facsimile transmission shall be confirmed by certified or
registered mail, postage prepaid, return receipt requested but shall be deemed
given when such facsimile was transmitted.
13.2 Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights and
remedies provided by law.
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13.3 Expenses. Unless otherwise expressly provided herein, all
costs and expenses incurred in connection with this Agreement shall be paid by
the party incurring such cost or expense.
13.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no party may assign,
delegate or otherwise transfer any of its rights or obligations under this
Agreement without the written consent of each other party hereto.
13.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of New York without regard to
the conflict of laws rules of such state.
13.6 Counterparts; Facsimile Signatures. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. The parties hereto acknowledge and agree that original signatures
delivered by facsimile transmission shall be acceptable as original signatures.
13.7 Third Party Beneficiaries. No provision of this Agreement is
intended to confer upon any Person, other than the parties hereto, any rights or
remedies hereunder, including, without limitation, any employee or former
employee of the Company or any of its Subsidiaries.
13.8 Entire Agreement. This Agreement, together with the Exhibits
and Schedules hereto and the Confidentiality Agreement, constitute the entire
agreement between the parties with respect to the subject matter of this
Agreement and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter of this
Agreement. No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto.
13.9 Headings. The headings of the articles, sections and schedules
of this Agreement are inserted for the sake of convenience only and shall not
constitute a part hereof.
13.10 Schedules. For purposes of this Agreement, the disclosure of
an item on a schedule hereto shall be deemed to be disclosure of such item on
each other applicable schedule.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
FRONTIER INSURANCE COMPANY
By: /s/ Peter H. Foley
----------------------
Name: Peter H. Foley
Title: Vice President
NI ACQUISITION CORP.
By: /s/ Bruce A. Esselborn
--------------------------
Name: Bruce A. Esselborn
Title: President
FOR PURPOSES OF SECTIONS 2.3(c)
AND ARTICLE 11 ONLY:
CAPSURE HOLDINGS CORP.
By: /s/ Bruce A. Esselborn
--------------------------
Name: Bruce A. Esselborn
Title: President
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Schedule 4.1
Insurance Affiliate of Buyer State of Incorporation
---------------------------- ----------------------
Frontier Pacific Insurance Company California
42
Schedule 4.3
Governmental Authorization
1. New York
2. Wisconsin
43
INDEX OF EXHIBITS
A Form of Opinion of Counsel to Seller
B Form of Opinion of Counsel to Parent (contained
in Exhibit A)
C-1 Form of Non-Solicitation/Non-Competition
Agreement to be executed by Parent
C-2 Form of Non-Solicitation/Non-Competition
Agreement to be executed by Bruce A. Esselborn
C-3 Form of Non-Solicitation Agreement to be
executed by Mary Jane Robertson
D Form of Tillinghast letter
E-1 Form of Termination Addendum with respect to
the Reinsurance Agreement
E-2 Form of Amendment No. 4 to the MGA Agreement
E-3 Form of Termination Addendum with respect to
the MGA Agreement
E-4 Form of Termination Addendum with respect to
the Surety Bond Quota Share Reinsurance
Agreement effective September 1, 1992 between
Western Surety and UCIC
F Form of letter from Equity Group Investments,
Inc. re: obligations under sublease
G Form of Assignment and Assumption of Executive
Change In Control And Termination Benefits
Agreements to be executed by Buyer
H Form of Opinion of Counsel to Buyer
I-1 Form of Assignment of Employment Agreement and
Guaranty for Mr. Zeitman
I-2 Form of Assignment of Employment Agreement and
Guaranty for Mr. Fischer