EXHIBIT 2.1: Stock Purchase Agreement dated as of November 4, 2005, among Motors
Insurance Corporation, MEEMIC Insurance Company, MEEMIC Insurance Services
Corporation, MEEMIC Holdings, and ProAssurance Corporation (without Exhibits &
Schedules).
STOCK PURCHASE AGREEMENT
DATED AS OF NOVEMBER 4, 2005
BY AND AMONG
MOTORS INSURANCE CORPORATION
(the "BUYER"),
MEEMIC INSURANCE SERVICES CORPORATION
("MEEMIC SERVICES"),
MEEMIC INSURANCE COMPANY
("MEEMIC INSURANCE," and together with MEEMIC Services, the "COMPANIES"),
MEEMIC HOLDINGS, INC.
("HOLDINGS")
AND
PROASSURANCE CORPORATION
(the "PARENT")
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TABLE OF CONTENTS
Page
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ARTICLE I SALE AND PURCHASE.......................................................................................1
SECTION 1.1. PURCHASE BY THE BUYER..................................................................1
SECTION 1.2. EXCLUDED ASSETS AND LIABILITIES........................................................1
SECTION 1.3. CLOSING................................................................................2
SECTION 1.4. PURCHASE PRICE.........................................................................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANIES, HOLDINGS AND THE PARENT...............................3
SECTION 2.1. ORGANIZATION...........................................................................3
SECTION 2.2. SUBSIDIARIES...........................................................................3
SECTION 2.3. GOOD STANDING..........................................................................3
SECTION 2.4. VALIDITY...............................................................................3
SECTION 2.5. CAPITALIZATION.........................................................................4
SECTION 2.6. OWNERSHIP OF THE SHARES................................................................5
SECTION 2.7. FINANCIAL STATEMENTS...................................................................5
SECTION 2.8. STATUTORY FINANCIAL STATEMENTS.........................................................7
SECTION 2.9. EVENTS SINCE DECEMBER 31, 2004.........................................................8
SECTION 2.10. REGULATORY FILINGS....................................................................10
SECTION 2.11. GUARANTY FUND ASSESSMENTS.............................................................11
SECTION 2.12. CONTRACTS.............................................................................11
SECTION 2.13. NO DEFAULT............................................................................14
SECTION 2.14. RENEWAL RIGHTS........................................................................14
SECTION 2.15. PERSONAL PROPERTY.....................................................................14
SECTION 2.16. REAL PROPERTY.........................................................................14
SECTION 2.17. TITLE; CONDITION OF ASSETS............................................................15
SECTION 2.18. ENVIRONMENTAL.........................................................................15
SECTION 2.19. ACCOUNTS RECEIVABLE...................................................................17
SECTION 2.20. BANK ACCOUNTS.........................................................................17
SECTION 2.21. GUARANTIES............................................................................17
SECTION 2.22. INSURANCE.............................................................................17
SECTION 2.23. EMPLOYEE BENEFITS.....................................................................17
SECTION 2.24. COMPENSATION..........................................................................19
SECTION 2.25. CERTAIN ADVANCES......................................................................20
SECTION 2.26. RELATED PARTIES.......................................................................20
SECTION 2.27. LICENSES AND PERMITS..................................................................20
SECTION 2.28. PROPRIETARY RIGHTS....................................................................21
SECTION 2.29. LABOR.................................................................................21
SECTION 2.30. COMPLIANCE WITH PRACTICES AND LAW.....................................................21
SECTION 2.31. LITIGATION............................................................................21
SECTION 2.32. NO CONFLICT...........................................................................22
SECTION 2.33. CONSENTS..............................................................................22
SECTION 2.34. TAXES.................................................................................22
SECTION 2.35. UNDERLYING DOCUMENTS..................................................................26
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SECTION 2.36. INSURANCE BUSINESS, MARKET CONDUCT AND BAD FAITH CLAIMS...............................27
SECTION 2.37. ASSETS NECESSARY TO BUSINESS..........................................................28
SECTION 2.38. BROKERS OR FINDERS....................................................................28
SECTION 2.39. ADVERSE COMMUNICATIONS................................................................28
SECTION 2.40. AGENTS, BROKERS AND TPA'S.............................................................29
SECTION 2.41. COMPUTER HARDWARE AND SOFTWARE........................................................29
SECTION 2.42. THE FOUNDATION........................................................................29
SECTION 2.43. DISCLOSURE OF MATERIAL FACTS..........................................................31
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER..........................................................31
SECTION 3.1. INCORPORATION AND GOOD STANDING OF THE BUYER..........................................32
SECTION 3.2. VALIDITY OF AGREEMENT.................................................................32
SECTION 3.3. NO CONFLICT...........................................................................32
SECTION 3.4. CONSENTS..............................................................................32
SECTION 3.5. BROKERS OR FINDERS....................................................................32
SECTION 3.6. FINANCING.............................................................................32
ARTICLE IV COVENANTS.............................................................................................32
SECTION 4.1. CONDUCT OF BUSINESS...................................................................32
SECTION 4.2. PRESERVATION OF BUSINESS..............................................................33
SECTION 4.3. NEGATIVE COVENANTS....................................................................33
SECTION 4.4. UPDATING OF THE COMPANY DISCLOSURE SCHEDULE...........................................33
SECTION 4.5. ACCESS TO INFORMATION.................................................................34
SECTION 4.6. FULFILLMENT OF CONDITIONS AND COVENANTS...............................................34
SECTION 4.7. PRESS RELEASES........................................................................34
SECTION 4.8. CONSENTS..............................................................................35
SECTION 4.9. CERTAIN NOTIFICATIONS.................................................................35
SECTION 4.10. NO SOLICITATION.......................................................................35
SECTION 4.11. COMPETITIVE ACTIVITIES; NON-SOLICITATION OF EMPLOYEES.................................35
SECTION 4.12. USE OF NAMES..........................................................................37
SECTION 4.13. INVESTMENT PORTFOLIO..................................................................37
SECTION 4.14. GENERAL RELEASE.......................................................................37
SECTION 4.15. INTERCOMPANY ACCOUNTS AND CONTRACT....................................................37
SECTION 4.16. ENVIRONMENTAL AUDIT...................................................................37
SECTION 4.17. ASSUMPTION OF SEVERANCE AGREEMENTS....................................................37
SECTION 4.18. DELIVERY OF BUSINESS RECORDS..........................................................38
SECTION 4.19. FINANCIAL STATEMENTS..................................................................38
SECTION 4.20. RESERVE ADEQUACY AUDIT................................................................38
SECTION 4.21. CONTINUATION OF EMPLOYEE PLANS........................................................39
SECTION 4.22. RELEASE OF HOLDINGS FROM SALES REPRESENTATIVE AGREEMENTS..............................40
ARTICLE V TAX MATTERS............................................................................................41
SECTION 5.1. TAX COOPERATION AND EXCHANGE OF INFORMATION...........................................41
SECTION 5.2. SECTION 338(H)(10) ELECTION...........................................................45
SECTION 5.3. MISCELLANEOUS.........................................................................46
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SECTION 5.4. TRANSFER TAXES........................................................................46
ARTICLE VI CONDITIONS TO OBLIGATIONS OF THE BUYER................................................................46
SECTION 6.1. PERFORMANCE...........................................................................46
SECTION 6.2. REPRESENTATIONS AND WARRANTIES........................................................46
SECTION 6.3. MATERIAL ADVERSE CHANGE...............................................................47
SECTION 6.4. LEGAL OPINION.........................................................................47
SECTION 6.5. CONSENTS..............................................................................47
SECTION 6.6. TERMINATION OF RELATED PARTY AGREEMENTS...............................................47
SECTION 6.7. GENERAL RELEASE.......................................................................47
SECTION 6.8. RESIGNATIONS..........................................................................47
SECTION 6.9. NO LITIGATION.........................................................................47
SECTION 6.10. GOVERNMENTAL APPROVALS................................................................48
SECTION 6.11. ENVIRONMENTAL AUDIT...................................................................48
SECTION 6.12. FOUNDATION INSURANCE COVERAGE.........................................................48
SECTION 6.13. APPROVAL OF PERMITTED DIVIDEND........................................................48
SECTION 6.14. CLOSING CERTIFICATES..................................................................49
ARTICLE VII CONDITIONS TO OBLIGATIONS OF THE COMPANIES, HOLDINGS AND THE PARENT..................................49
SECTION 7.1. PERFORMANCE...........................................................................49
SECTION 7.2. REPRESENTATIONS AND WARRANTIES........................................................49
SECTION 7.3. LEGAL OPINION.........................................................................49
SECTION 7.4. NO LITIGATION.........................................................................49
SECTION 7.5. GOVERNMENTAL APPROVALS................................................................49
SECTION 7.6. CLOSING CERTIFICATES..................................................................50
ARTICLE VIII TERMINATION.........................................................................................50
SECTION 8.1. TERMINATION...........................................................................50
SECTION 8.2. EFFECT OF TERMINATION.................................................................50
ARTICLE IX INDEMNIFICATION.......................................................................................50
SECTION 9.1. INDEMNIFIABLE CLAIMS..................................................................50
SECTION 9.2. NOTICE OF CLAIM.......................................................................51
SECTION 9.3. LIMITATION OF INDEMNIFICATION.........................................................52
SECTION 9.4. RIGHT OF OFFSET.......................................................................53
SECTION 9.5. TAX INDEMNIFICATION...................................................................53
SECTION 9.6. EXCLUSIVE REMEDY......................................................................56
ARTICLE X MISCELLANEOUS..........................................................................................56
SECTION 10.1. NOTICES...............................................................................56
SECTION 10.2. ENTIRE AGREEMENT......................................................................57
SECTION 10.3. WAIVERS AND AMENDMENTS................................................................57
SECTION 10.4. CONFIDENTIALITY.......................................................................57
SECTION 10.5. EXPENSES..............................................................................57
SECTION 10.6. FURTHER ACTIONS.......................................................................57
SECTION 10.7. SURVIVAL..............................................................................57
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SECTION 10.8. GOVERNING LAW; VENUE..................................................................57
SECTION 10.9. ASSIGNMENT............................................................................58
SECTION 10.10. COUNTERPARTS..........................................................................58
SECTION 10.11. THE COMPANY DISCLOSURE SCHEDULE AND EXHIBITS..........................................58
SECTION 10.12. HEADINGS..............................................................................58
SECTION 10.13. KNOWLEDGE.............................................................................58
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SCHEDULES AND EXHIBITS
Exhibits
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Exhibit 2.7(b) Monthly Financial Information
Exhibit 4.14 General Release
Exhibit 6.4 Legal Opinion of Counsel to the Companies, Holdings
and the Parent
Exhibit 7.3 Legal Opinion of Counsel to the Buyer
Schedules
- ---------
Schedule 1.2(a) Excluded Assets
Schedule 1.2(b) Excluded Liabilities
Schedule 2.3 Jurisdiction of Qualification
Schedule 2.8(d) Letters of Credit
Schedule 2.9 Events Since December 31, 2004
Schedule 2.10 Regulatory Filings
Schedule 2.11 Guaranty Fund Assessments
Schedule 2.12 Contracts
Schedule 2.12(b) Reinsurance Agreements
Schedule 2.12(c) Terminated and Modified Contracts
Schedule 2.14 Third Party Insurance Contracts
Schedule 2.15 Personal Property
Schedule 2.16 Real Property
Schedule 2.17 Liens
Schedule 2.19 Accounts Receivable
Schedule 2.21 Guaranties
Schedule 2.22 Insurance
Schedule 2.23 Employee Benefits
Schedule 2.24 Compensation
Schedule 2.25 Certain Advances
Schedule 2.26 Related Parties
Schedule 2.27 Licenses and Permits
Schedule 2.28 Proprietary Rights
Schedule 2.30 Compliance with Practice and Laws
Schedule 2.32 No Conflict
Schedule 2.33 Consents
Schedule 2.34 Taxes
Schedule 2.36 In-Force Insurance Contracts
Schedule 2.39 Adverse Communications
Schedule 2.40 Agents, Brokers and TPA's
Schedule 3.4 Buyer Consents
Schedule 3.5 Buyer Brokers or Finders
Schedule 4.11(b) Employees Subject to No-Hire
Schedule 4.15 Intercompany Accounts and Contracts
Schedule 6.5 Required Consents
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GLOSSARY
Page
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Acquisition.......................................................................................................1
Acquisition Proposal.............................................................................................35
Actuary..........................................................................................................38
Actuary's Best Estimate..........................................................................................38
Agreement.........................................................................................................1
Applicable Tax Law...............................................................................................22
Balance Sheets....................................................................................................5
Basket Amount....................................................................................................52
Business..........................................................................................................1
Buyer.............................................................................................................1
Buyer Disclosure Schedule........................................................................................31
Buyer Employee Plan..............................................................................................39
Claimant.........................................................................................................51
Closing...........................................................................................................2
Closing Date......................................................................................................2
Code.............................................................................................................24
Companies.........................................................................................................1
Company...........................................................................................................1
Company Disclosure Schedule.......................................................................................3
Company Employees................................................................................................39
Company-Leased Real Property.....................................................................................14
Company-Owned Real Property......................................................................................14
Confidentiality Agreement........................................................................................34
Continuing Employees.............................................................................................39
Contracts........................................................................................................11
Election.........................................................................................................45
Employee Benefit Plans...........................................................................................18
Environmental Laws...............................................................................................16
ERISA Affiliate..................................................................................................17
ERISA Plans......................................................................................................18
Excluded Assets...................................................................................................1
Final Tax Allocation Amount......................................................................................45
Financial Statements..............................................................................................5
Foundation.......................................................................................................29
Foundation Balance Sheet.........................................................................................29
GAAP..............................................................................................................2
General Release..................................................................................................37
Hazardous Materials..............................................................................................16
Holdings..........................................................................................................1
HSR Act..........................................................................................................48
Included Assets...................................................................................................2
Indemnifiable Claim..............................................................................................51
Indemnifying Parties.............................................................................................51
Insurance Policies...............................................................................................17
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Insurance Shares..................................................................................................1
IRS..............................................................................................................18
Licenses and Permits.............................................................................................20
Liens............................................................................................................15
Litigation.......................................................................................................21
Material Adverse Effect..........................................................................................47
MEEMIC Insurance..................................................................................................1
MEEMIC Services...................................................................................................1
Parent............................................................................................................1
Permitted Dividend...............................................................................................33
PIP Claims.......................................................................................................28
Post-Effective Period............................................................................................23
Pre-Effective Period.............................................................................................23
Prior 2005 Dividends..............................................................................................8
Proprietary Rights...............................................................................................21
Purchase Price....................................................................................................2
Qualified Plan...................................................................................................18
Quarter End Report................................................................................................5
Quarterly Balance Sheets..........................................................................................5
Real Property....................................................................................................14
Reinsurance Agreements...........................................................................................13
Related Party Agreements.........................................................................................11
Release and Severance Compensation Agreements....................................................................37
Representative...................................................................................................51
Reserve Deficiency Reimbursement.................................................................................39
Reserve Reviews..................................................................................................38
Restricted Business..............................................................................................35
Restrictive Period...............................................................................................35
Sales Representative Agreements..................................................................................40
SAP..............................................................................................................13
SEC...............................................................................................................6
SEC Filings.......................................................................................................6
Second Actuary...................................................................................................39
Services Shares...................................................................................................1
Shares............................................................................................................1
Statutory Insurance Statements...................................................................................10
Statutory Statements..............................................................................................7
Stock Ownership Plan.............................................................................................40
Straddle Period..................................................................................................23
Success Fee Letters..............................................................................................38
Tangible Book Value of Holdings...................................................................................2
Tax Allocation Agreement.........................................................................................45
Tax Authority....................................................................................................23
Tax Period.......................................................................................................23
Tax Returns......................................................................................................24
Taxes............................................................................................................23
Transaction Agreements............................................................................................3
vii
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is dated as of November 4,
2005 and is by and among Motors Insurance Corporation, a Michigan corporation
(the "Buyer"), MEEMIC Insurance Services Corporation, a Michigan corporation
("MEEMIC Services"), MEEMIC Insurance Company, a Michigan stock insurance
corporation ("MEEMIC Insurance," and together with MEEMIC Services, the
"Companies" and each a "Company"), MEEMIC Holdings, Inc., a Michigan corporation
("Holdings"), and ProAssurance Corporation, a Delaware corporation (the
"Parent").
RECITALS
A. The Companies are engaged in the business of marketing, underwriting
and servicing personal lines insurance whose target market is individuals, and
their families, who are employed by educational institutions in the states of
Michigan and Wisconsin and MEEMIC Insurance also maintains certain insurance
licenses in Ohio and Minnesota (collectively, the "Business").
B. The authorized capital stock of MEEMIC Services consists solely of
60,000 shares of common stock, no par value, of which 100 shares are issued and
outstanding (the "Services Shares"). The authorized capital stock of MEEMIC
Insurance consists solely of 1,500,000 shares of common stock, $1.00 par value
per share, of which 1,500,000 shares are issued and outstanding (the "Insurance
Shares," and together with the Services Shares, the "Shares"). Holdings owns all
of the Shares, and the Parent is the ultimate parent company of Holdings and the
Companies.
C. Pursuant to this Agreement, at the Closing, the Buyer or an affiliate
(as hereinafter defined) of the Buyer will buy from Holdings, and Holdings will
sell to the Buyer, all of the Shares (the "Acquisition"), subject to the terms
and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained herein, and intending to be legally bound
hereby, the parties to this Agreement agree as follows:
ARTICLE I
SALE AND PURCHASE
Section 1.1 Purchase by the Buyer. Subject to the terms and conditions set
forth in this Agreement, the Buyer agrees to purchase from Holdings, and
Holdings agrees to sell to the Buyer, the Shares.
Section 1.2 Excluded Assets and Liabilities.
(a) Anything herein to the contrary notwithstanding, prior to the Closing
Date, Holdings and the Companies shall cause the assets listed on Schedule
1.2(a) (the "Excluded Assets") to be transferred from the ownership of the
Companies.
(b) All of the obligations and liabilities of the Companies set forth on
Schedule 1.2(b) shall be, prior to the Closing Date, either: (a) satisfied by
Holdings without the use of the funds or assets of the Companies, or (b)
assigned by the applicable Company to Holdings and assumed by Holdings, and
Holdings shall release the Companies from any ongoing liability with respect
thereto.
Section 1.3 Closing.
(a) The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the Chicago, Illinois offices of the Buyer's
counsel or via facsimile and/or email on the date that is five (5) Business Days
following the satisfaction or waiver of all conditions set forth in Articles VI
and VII of this Agreement; provided, however, that the Closing shall not occur
prior to January 1, 2006. The date on which the Closing actually occurs shall be
the "Closing Date."
(b) On the Closing Date, the following actions shall be taken:
(i) The Buyer shall pay an amount equal to the Purchase Price (as
defined below) by wire transfer of immediately available funds payable to
Holdings;
(ii) Holdings shall deliver, or cause to be delivered, to the Buyer,
all of the Shares, together with executed consents, terminations and
assignments, including, without limitation, assignments of the certificates
representing the Shares and other instruments of consent and conveyance in
form and substance reasonably satisfactory to the Buyer, sufficient to
convey to the Buyer good and marketable title to the Shares and to preserve
the assets of the Companies other than the Excluded Assets (the "Included
Assets"); and
(iii) Each party shall execute and deliver such other documents or
certificates required under this Agreement or reasonably requested by the
other parties.
Section 1.4. Purchase Price.
(a) The "Purchase Price" shall be Three Hundred Twenty-Seven Million
Dollars ($327,000,000), plus (i) Seventy-Three Million Dollars ($73,000,000)
less the sum of the Prior 2005 Dividends (as defined in Section 2.9(d) hereof)
and the Permitted Dividends (as defined in Section 4.3 hereof) authorized,
declared and paid to Holdings by the Companies, less (ii) the Tangible Book
Value of Holdings. The "Tangible Book Value of Holdings" shall be calculated as
follows: (i) the sum of (a) fixed maturities, cash, accrued investment income
and deferred federal income tax, less (b) accrued expenses and other liabilities
and federal income taxes payable, less (ii) the sum of Prior 2005 Dividends and
Permitted Dividend declared and paid to Holdings by the Companies, less any
dividends declared and paid by Holdings to any affiliate of the Parent. The
Tangible Book Value of Holdings shall be based upon the then most recent
available balance sheet of Holdings, which shall be prepared in accordance with
United States generally accepted accounting principles consistently applied
("GAAP"), subject to any estimated adjustments prior to the Closing Date and
agreed to in good faith jointly in writing by the Parent and the Buyer.
2
(b) The Purchase Price shall be allocated between the Services Shares and
the Insurance Shares as mutually determined by the Buyer and the Parent within
fifteen (15) days following the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANIES,
HOLDINGS AND THE PARENT
The Companies, Holdings and the Parent hereby, jointly and severally, make
the following representations and warranties, each of which is true and correct
on the date hereof, shall remain true and correct to and including the Closing
Date (other than those representations and warranties provided as of a specific
date), shall survive the Closing as herein provided and shall be unaffected by
any investigation heretofore or hereafter made by the Buyer. All representations
and warranties of the Companies, Holdings and the Parent are made subject to the
exceptions specifically disclosed by the Companies, Holdings or the Parent in
the Schedules delivered contemporaneously with the execution of this Agreement,
which shall consist of the aggregate of Schedules specifically set forth in this
Article (the "Company Disclosure Schedule").
Section 2.1. Organization. Each Company is a corporation duly organized,
validly existing and in good standing under the laws of Michigan and has all
requisite corporate power and authority to own, lease and operate its properties
and assets in the manner in which such properties and assets are now owned,
leased and operated and to carry on the business in which it is now engaged.
Prior to the date hereof, Holdings has delivered to the Buyer true and complete
copies of the articles of incorporation and bylaws of each Company, as currently
in effect.
Section 2.2. Subsidiaries. Neither Company has any equity interest in any
entity, other than with respect to portfolio investments made in the ordinary
course of business.
Section 2.3. Good Standing. The Companies are each qualified or licensed to
transact business as a foreign corporation and/or insurer, as the case may be,
in each of the jurisdictions listed on Schedule 2.3, and each Company is in good
standing in each jurisdiction where it is so qualified. There is no other
jurisdiction in which the ownership, leasing, licensing or use of property or
assets by either Company or the conduct of any of their respective businesses
makes such qualification or licensing necessary, except where failure to be so
qualified or license would not have a Material Adverse Effect.
Section 2.4. Validity. Each Company, Holdings and the Parent each has full
power and authority, corporate and otherwise, to execute and deliver this
Agreement and all of the other agreements and documents referred to herein,
executed in connection herewith or contemplated hereby to which the Companies,
Holdings or the Parent is a party (all other agreements and documents referred
to herein, executed in connection herewith or contemplated hereby are herein
referred to as the "Transaction Agreements"), to perform their respective
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. This Agreement constitutes, and the Transaction
Agreements, when executed and delivered, will constitute, the valid and binding
obligations of the Companies, Holdings and the Parent, enforceable against the
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Companies, Holdings and the Parent, as applicable, in accordance with their
respective terms, subject to bankruptcy, insolvency or other laws affecting
creditors' rights generally. The execution and delivery of this Agreement by the
Companies, Holdings and the Parent and the consummation of the transactions
contemplated hereby have been duly authorized by the respective boards of
directors of each Company, Holdings and the Parent and, except as set forth on
Schedule 2.33, such execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not require
any further corporate approvals.
Section 2.5. Capitalization.
(a) The authorized capital stock of MEEMIC Services consists entirely of
60,000 shares of common stock, no par value, of which only the Service Shares
are issued or outstanding. All Service Shares are validly authorized and issued,
fully paid, nonassessable and free and clear of any pledges, security interests,
liens, encumbrances, restrictions, charges, claims or other charges of any kind,
including, without limitation, any agreements, commitments or other rights of
any character granted to any person, firm, corporation or other entity. There
are no (a) securities convertible into or exchangeable for any of MEEMIC
Services' capital stock or other securities, (b) options, warrants or other
rights to purchase or subscribe to capital stock or other securities of MEEMIC
Services or securities which are convertible into or exchangeable for capital
stock or other securities of MEEMIC Services, or (c) contracts, commitments,
agreements, understandings or arrangements of any kind relating to the issuance,
sale or transfer of any capital stock or other equity securities of MEEMIC
Services, any such convertible or exchangeable securities or any such options,
warrants or other rights.
(b) The authorized capital stock of MEEMIC Insurance consists entirely of
1,500,000 shares of common stock, $1.00 par value per share, of which only the
Insurance Shares are issued or outstanding. All Insurance Shares are validly
authorized and issued, fully paid, nonassessable and free and clear of any
pledges, security interests, liens, encumbrances, restrictions, charges, claims
or other charges of any kind, including, without limitation, any agreements,
commitments or other rights of any character granted to any person, firm,
corporation or other entity. There are no (a) securities convertible into or
exchangeable for any of MEEMIC Insurance capital stock or other securities, (b)
options, warrants or other rights to purchase or subscribe to capital stock or
other securities of MEEMIC Insurance or securities which are convertible into or
exchangeable for capital stock or other securities of MEEMIC Insurance, or (c)
contracts, commitments, agreements, understandings or arrangements of any kind
relating to the issuance, sale or transfer of any capital stock or other equity
securities of MEEMIC Insurance, any such convertible or exchangeable securities
or any such options, warrants or other rights.
4
Section 2.6. Ownership of the Shares. Holdings owns all of the legal and
beneficial interests in the Shares, free and clear of any lien, security
interest, pledge, charge, claim, encumbrance or restriction of any kind or
nature, and at the Closing the Buyer shall receive good and marketable title to
the Shares, free and clear of any lien, security interest, pledge, charge,
claim, encumbrance or restriction of any kind or nature.
Section 2.7. Financial Statements.
(a) There have been delivered to the Buyer true, correct and complete
copies of (i) the consolidated audited balance sheets of Holdings and the
Companies as of December 31, 2001 and 2002, and the related consolidated audited
statements of earnings, shareholders' equity and cash flows of Holdings and the
Companies for the periods ended December 31, 2001 and 2002, together with
unqualified reports on all such financial statements by Ernst & Young LLP, and
(ii) the unaudited balance sheets of each Holdings and the Companies as of
December 31, 2003 and 2004 and as of September 30, 2005 (such September 30, 2005
balance sheets being referred to as the "Balance Sheets"), and the related
unaudited statements of earnings, shareholders' equity and cash flows for the
years ended December 31, 2003 and 2004 and for the nine (9)-month period ended
September 30, 2005 (collectively, the "Financial Statements").
(b) (i) As soon as practicable, but in any event within twenty-five (25)
days following the end of each calendar quarter which is completed prior to the
Closing Date, commencing December 31, 2005, Holdings shall cause to be delivered
to the Buyer the "Quarter End Report" prepared by Holdings with respect to such
quarter, which report shall include (x) a balance sheet of each of Holdings and
the Companies as of the end of such quarter prepared in a manner consistent
with, and in a format comparable to, the Balance Sheets ("Quarterly Balance
Sheets") and (y) a statement of earnings and shareholders' equity for each of
the Companies for the year-to-date period ending the end of such quarter,
prepared in a manner consistent with, and in a format comparable to, the
statements of earnings and shareholders' equity referred to in Section 2.7(a)
hereof.
(ii) As soon as practicable, but in any event within ten (10) business
days following the end of each calendar month which is completed prior to the
Closing Date, commencing October 31, 2005, Holdings shall cause to be delivered
to the Buyer monthly financial information of the Companies in the form of
Exhibit 2.7(b) attached hereto.
(c) Each of the balance sheets referred to in Section 2.7(a) and 2.7(b)(i)
and (ii) presents (or will present) fairly the financial condition, assets,
liabilities and shareholders' equity of each of Holdings and the Companies as of
its date; each such statement of earnings or shareholders' equity referred to
above presents (or will present) fairly the results of operations of each of
Holdings and the Companies, as the case may be, for the periods indicated; and
each such statement of cash flows referred to above presents fairly the
information purported to be shown therein, except, in each case, interim
unaudited financial statements need not reflect year-end adjustments. The
financial statements referred to in Section 2.7(a) and Section 2.7(b)(i),
including all notes and schedules thereto, have been (or will be) prepared in
accordance with GAAP throughout the periods involved (except, in the case of
unaudited financial statements, for the absence of footnotes and year-end
adjustments) and are (or will be) in accordance with the books and records of
each of Holdings and the Companies, which books and records are correct and
complete in all material respects.
5
(d) Each of the Companies maintains accurate books and records reflecting
its assets and liabilities and maintains proper and adequate internal accounting
controls over financial reporting which provide assurance that (i) transactions
are executed with management's authorization; (ii) transactions are recorded as
necessary to permit preparation of the financial statements of each of the
Companies and to maintain accountability for the assets of each of the
Companies; (iii) access to assets is permitted only in accordance with
management's authorization; (iv) the reporting of assets is compared with
existing assets at regular intervals; and (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis. Neither the auditors nor the board of directors or audit committee
of either of the Companies or any of the Companies' corporate parents have been
advised of: (x) any significant deficiencies or material weaknesses in the
design or operation of the internal controls over financial reporting (as such
term is defined in Section 13(b)(2)(B) and Rules 13d-15(d) and 15d-15(d) of the
Securities Exchange Act of 1934) of either of the Companies which could
adversely affect either Company's ability to record, process, summarize and
report financial data, or (y) any fraud, whether or not material, that involves
management or other employees who have a role in the internal controls over
financial reporting of the Companies.
(e) At the dates of the aforementioned balance sheets, neither Company had
(or will have with respect to such balance sheets dated subsequent to the date
hereof) any liabilities or obligations of any nature, whether accrued, absolute,
contingent or otherwise, whether due or to become due, and whether or not
required to be disclosed on a balance sheet prepared in conformity with GAAP,
not fully or properly reflected or reserved against in such balance sheets, or
in any notes thereto, other than liabilities pursuant to contractual obligations
identified in this Agreement or the Company Disclosure Schedule.
(f) Holdings has delivered or made available to the Buyer true, correct
and complete copies of all filings required to be made with the Securities and
Exchange Commission (the "SEC") by or with respect to Holdings since December
31, 2001, including, Holdings' (i) Annual Reports on Form 10-K for the years
ended December 31, 2001 and 2002, as filed with the SEC, (ii) proxy statements
relating to all of Holdings' meetings of stockholders since December 31, 2001,
and (iii) all other reports, statements and registration statements (including
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed by
Holdings with the SEC since December 31, 2001 (collectively, the "SEC Filings").
As of their respective dates, the SEC Filings did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statement therein, in light of the
circumstances under which they were made, not misleading.
(g) MEEMIC Insurance has $2 million on deposit with the Michigan Office of
Financial and Insurance Services.
(h) All receivables, bonds, notes, debts, liabilities and other
obligations of any kind or nature owed to the Companies, including agent
6
balances, represent arm's length transactions actually made in the ordinary
course of business, are collectible in the ordinary course of business.
Section 2.8. Statutory Financial Statements.
(a) There have been made available to the Buyer true, correct and complete
copies of (i) the statutory financial statements (including the annual reports
filed in each state in which MEEMIC Insurance is admitted or approved) for
MEEMIC Insurance for the years ended December 31, 2002, 2003 and 2004 and (ii)
the statutory financial statements (including quarterly reports filed in each
state in which MEEMIC Insurance is admitted or approved) for MEEMIC Insurance
for the first two quarters in the year 2005, and Holdings will deliver to the
Buyer true, correct and complete copies of such statements for all quarters
which are filed prior to the Closing Date (collectively, the "Statutory
Statements").
(b) The Statutory Statements each present (or will present) fairly, on a
consistent basis and in accordance with the practices prescribed or permitted by
the appropriate regulatory agencies of each state in which the Statutory
Statements have been or may be required to be filed, the financial position of
MEEMIC Insurance at the date of each such statement and the results of MEEMIC
Insurance's operations for each such referenced period. Further, the exhibits
and schedules included in the Statutory Statements are fairly stated in relation
to MEEMIC Insurance and the Statutory Statements comply in all material respects
with applicable regulatory requirements.
(c) The amounts shown in the Statutory Statements as reserves and
liabilities for past and future insurance policy benefits, losses, claims and
expenses under insurance policies were computed in accordance with commonly
accepted actuarial standards consistently applied, were fairly stated in
accordance with sound actuarial principles, were based on actuarial assumptions
that were in accordance with those called for in policy provisions and met the
requirements of applicable insurance laws, and such amounts shown on Statutory
Statements filed after the date hereof and on or prior to the Closing Date will
be so computed and based on the same principles used in prior periods.
(d) MEEMIC Insurance has all necessary letters of credit or other security
devices in all cases where needed, and all such letters of credit and security
devices comply in all material respects with all applicable laws and
regulations, to enable it to take a credit against its liabilities in, or
increase its assets by, the amount of the letter of credit or security device.
Schedule 2.8(d) identifies all letters of credit and other security devices held
or maintained for the benefit of MEEMIC Insurance to support receivable balances
from unauthorized reinsurers.
(e) All reserves and other similar amounts with respect to insurance
written by MEEMIC Insurance as established or reflected in the Statutory
Statements were computed in accordance with commonly accepted actuarial
standards consistently applied and are fairly stated in accordance with sound
actuarial principles that are in accordance with those called for by the
provisions of the related insurance contracts and in the related reinsurance,
coinsurance, and other similar Contracts of MEEMIC Insurance, which meet the
requirements of the insurance laws and regulations of its state of domicile and
of the states in which such insurance contracts were issued or delivered. All
such reserves and related actuarial items held in support of the insurance
7
contracts written by MEEMIC Insurance, when considered in light of the assets
held with respect to the reserves and related actuarial items, will make good,
sufficient and adequate provision (under commonly accepted actuarial standards
consistently applied and fairly stated in accordance with sound actuarial
principles) to cover the total amount of all reasonably anticipated matured and
unmatured benefits, dividends, claims, expenses and other liabilities of MEEMIC
Insurance under all insurance contracts under which MEEMIC Insurance has or will
have any liability (including, without limitation, any liability arising under
or as a result of any reinsurance, coinsurance, or other similar contract) on
the respective dates of such Statutory Statements. MEEMIC Insurance owns assets
that qualify as legal reserve assets under applicable insurance laws in an
amount at least equal to all such required reserves and other similar amounts.
Section 2.9. Events Since December 31, 2004. Since December 31, 2004,
except as set forth on Schedule 2.9 or as expressly disclosed in the SEC Filings
or the Statutory Statements, Holdings and the Companies have conducted business
only in the ordinary and usual course and, without limiting the generality of
the foregoing:
(a) Neither Company has sustained any damage, destruction or loss
(including, without limitation, by reason of revocation of license or right to
do business, total or partial termination, suspension, default or modification
of contracts or governmental restriction, regulation, investigation or inquiry),
whether or not covered by insurance, materially adversely affecting the
condition (financial or otherwise), business, net worth, operations, assets,
properties, liabilities, results of operations or future prospects of either
Company or the Business, taken as a whole.
(b) There have been no changes which, individually or in the aggregate,
have had or may reasonably be expected to have a Material Adverse Effect.
(c) Neither Company has incurred additional debt for borrowed money or
contracted for the extension or ability to borrow debt for borrowed money (even
if not yet incurred), or incurred any other obligation or liability (fixed,
contingent or otherwise), except in the ordinary and usual course of its
business and consistent with past practices.
(d) Neither Company has authorized, declared, paid or effected any
dividend, payment or other distribution on or with respect to any of its capital
stock, other than dividends already authorized, declared and paid to Holdings by
the Companies which are disclosed on Schedule 2.9 (the "Prior 2005 Dividends").
(e) Neither Company has purchased, redeemed or otherwise acquired or
committed itself to acquire, directly or indirectly, any of its capital stock.
(f) Neither Company has mortgaged, pledged or otherwise encumbered or
subjected to lien any of its assets or properties, tangible or intangible,
except for liens for current taxes which are not yet due and payable and other
liens arising in the ordinary and usual course of business. Neither Holdings,
the Parent nor any of their affiliates have mortgaged, pledged or otherwise
encumbered or subjected to lien any of its assets or properties used in the
Business, tangible or intangible, except for liens for current taxes which are
8
not yet due and payable and other liens arising in the ordinary and usual course
of business. For purposes of this Agreement, "affiliate" shall mean, with
respect to any specified person or entity, any other person or entity that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such specified person or entity.
(g) Neither Company, nor, with regard to the assets and properties used in
the Business, Holdings nor the Parent, has sold, leased or otherwise disposed of
any asset or property, tangible or intangible, except in the ordinary and usual
course of business and consistent with past practices, and in each case for a
consideration at least equal to the fair value of such asset or property, nor
has either Company, nor, with respect to the assets and property used in the
Business, Holdings nor Parent, leased or licensed to others (including officers
and directors) any asset or property.
(h) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has paid or prepaid any obligation or liability (fixed,
contingent or otherwise), or discharged or satisfied any lien or encumbrance, or
settled any liability, claim, dispute, proceeding, suit or appeal, pending or
threatened against it or any of its assets or properties, except for current
liabilities included in the Balance Sheets and current liabilities incurred
since that date in the ordinary and usual course of business.
(i) Neither Company has purchased or otherwise acquired any debt or equity
securities of any corporation, partnership, joint venture, firm or other entity
other than investment securities in the ordinary course of business.
(j) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has sold, assigned, transferred or conveyed any
Proprietary Right (as defined below).
(k) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has entered into any transaction or contract, except in
the ordinary and usual course of business, nor has either Company, nor, with
respect to the Business or the Companies, Holdings nor the Parent, waived any
right of substantial value or canceled any material debts or claims or
voluntarily suffered any extraordinary losses.
(l) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has effected any amendment or supplement to, or
extension of, any employee profit-sharing, stock option, stock purchase,
pension, bonus, incentive, retirement, medical reimbursement, life insurance,
deferred compensation, severance or termination agreements or any other employee
benefit plan or arrangement.
(m) Neither Holdings nor either Company has paid to or for the benefit of
any of its directors, officers, employees or shareholders any compensation of
any kind other than wages, salaries, bonuses and benefits at times and rates in
effect prior to December 31, 2004. Those certain Release and Severance
Compensation Agreements, each dated as of June 15, 2001, among the Parent,
Holdings, MEEMIC Insurance and each of Lynn Kalinowski and Christine Schmitt
have not been amended, restated or modified.
9
(n) Neither Company has had any change in its directors or executive
management, and there has been no significant change in the number of employees
of either Company managing and processing their respective business.
(o) Neither Company has had any amendment or modification to its
respective charter documents, bylaws or other governing documents.
(p) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has experienced any material problems in employee
relations, including, without limitation, strikes, shutdowns, slowdowns, work
stoppages or resignations of key employees.
(q) Neither Company, nor, with respect to the Business or the Companies,
Holdings nor the Parent, has made any change in accounting methods or principles
used for financial or regulatory reporting purposes, except for changes which
are required for all property and casualty insurers and concurred with by their
independent public accountants, and neither Company has materially changed its
practices with respect to loss reserves.
(r) There has been no material change in the terms of the in-force
insurance contracts written by MEEMIC Insurance or any material change in the
policies or actual processes used in calculating the reserves with respect to
such insurance contracts. There has been no termination, amendment, or execution
by MEEMIC Insurance of any reinsurance, coinsurance, or other similar contract,
as ceding or assuming insurer.
(s) There has been no change in the material business policies, practices
or procedures of the Companies, including those relating to underwriting, form
and rate filings, marketing, the establishment of reserves, investment, claims
handling or adjustment, accounting or any activity which (i) has had the effect
of accelerating the recording and billing of premiums or accounts receivable or
retarding the payment of expenses or establishing reserves in connection with
any accounts or business of MEEMIC Insurance, or (ii) has had the effect of
materially altering, modifying or changing the historic financial or accounting
practices or policies of MEEMIC Insurance, including accruals of and reserves
for tax liabilities.
(t) Neither Company, nor, with respect to the Business or the Companies,
Holdings or the Parent, has entered into any agreement or commitment, whether in
writing or otherwise, to take any action described in this Section.
Section 2.10. Regulatory Filings.
Except as set forth on Schedule 2.10:
(a) Each Company, and, with respect to the Business or the Companies,
Holdings and the Parent, have filed all reports, statements, documents,
registrations (including registrations with applicable state insurance
regulatory authorities as a member of an insurance holding company system),
filings or submissions and any supplements or amendments thereto (the "Statutory
Insurance Statements") required to be filed by any of them since December 31,
2001. The Statutory Insurance Statements were in compliance with applicable law
when filed and no deficiencies have been asserted by any governmental authority
10
with respect to the Statutory Insurance Statements. No fine or penalty has been
imposed on either Company or otherwise with respect to the Business by any
insurance regulatory authority, except for incidental penalties of less than
$2,500 per occurrence or $10,000 in the aggregate, which in each case did not
have a material effect on operations or results of operations of the Business.
(b) The Companies, Holdings and the Parent have made available to the
Buyer copies of all examination reports, correspondence, reports of
investigations, inquiries and other materials relating to the Companies or the
Business received from any insurance regulatory authority.
(c) All deficiencies or violations noted in such examination reports have
either been resolved or are being resolved to the satisfaction of the applicable
insurance regulatory authority in all material respects, without any enforcement
action being taken against either Company.
(d) There are no examinations by any state insurance department examiners
in progress at either Company or otherwise with respect to the Business, nor, to
the knowledge of either Company, Holdings or the Parent, are any such
examinations pending or scheduled with respect to either Company or with respect
to the Business.
Section 2.11. Guaranty Fund Assessments. Other than as set forth on
Schedule 2.11, neither Company currently participates in, nor is either required
to participate in, any risk sharing plan, pool, joint underwriting association
or similar arrangement pursuant to any insurance laws. The liability of MEEMIC
Insurance Company for guaranty fund assessments with respect to insurance
insolvencies is accounted for as a current expense when notified of the
assessment. MEEMIC Insurance Company does not establish a reserve for guaranty
fund assessments. Schedule 2.11 reflects all notices of guaranty fund
assessments received by MEEMIC Insurance Company since June 30, 2005.
Section 2.12. Contracts.
(a) Schedule 2.12 constitutes a full and complete list of the following
described contracts or agreements to which either Company is a party, by which
either Company is bound in any respect or which relates, directly or indirectly,
to the Business (the "Contracts"):
(i) contracts or agreements relating to selling, servicing,
administering or acting as the obligor with respect to insurance contracts
(other than those entered into by MEEMIC Insurance in the ordinary course
of its business);
(ii) contracts between either Company on the one hand, and Holdings,
the Parent or any of their affiliates on the other hand (the "Related Party
Agreements");
(iii) contracts or agreements for the disposition, by sale, lease or
otherwise, of equipment, goods, materials, research and development,
supplies, studies or capital assets, or for the performance of services, in
any case involving more than $50,000;
11
(iv) contracts or agreements for the joint performance of work or
services, and all other joint venture, partnership or other similar
agreements;
(v) management or employment contracts, consulting contracts,
collective bargaining contracts, or other agreements with any labor union,
or termination and severance agreements;
(vi) notes, mortgages, deeds of trust, loan agreements, security
agreements, guarantees, debentures, indentures, credit agreements,
warehousing agreements, repurchase agreements and other evidences of
indebtedness, other than endorsements for collection or deposit in the
ordinary course of business;
(vii) pension, retirement, profit-sharing, deferred compensation,
bonus, incentive, life insurance, hospitalization or other employee benefit
plans or arrangements (including, without limitation, any contracts or
agreements with trustees, insurance companies or others relating to any
such employee benefit plan or arrangement);
(viii) stock option, stock purchase, warrant, repurchase or other
contract or agreement with any employee or officer of Holdings or either
Company;
(ix) contracts or agreements with insurance or title underwriters,
agents (broken down by agent and each agent's volume), brokers or sales
representatives;
(x) contracts or agreements with any director or officer of Holdings,
either Company or with any person or entity affiliated or associated with
such director or officer, or with any affiliate of the Parent;
(xi) powers of attorney or similar authorizations to any third party;
(xii) licenses, sublicenses, royalty agreements, confidentiality,
non-disclosure, non-use or other similar contracts or agreements and any
other contract or agreement relating to technical assistance or Proprietary
Rights;
(xiii) deeds or executory contracts relating to real property owned of
record or beneficially;
(xiv) leases, whether as lessor or lessee, with respect to (A)
individual items of personal property, which are not terminable without
penalty in thirty (30) days and (B) any real property;
(xv) contracts or agreements for the purchase of any equipment,
capital assets or services, other than any such contract or agreement made
in the ordinary course of business involving less than $50,000; provided,
however, that if there are multiple agreements or service orders with one
party or any affiliate of such party exceeding $50,000 in the aggregate,
such information shall be included on Schedule 2.12;
(xvi) except for items listed on Schedule 2.8(d), all letters of
credit and other security devices held or maintained for the benefit of
either Company;
12
(xvii) contracts or agreements containing covenants limiting the
freedom of either Company to compete in any line of business or with
respect to any particular product or service or with any person;
(xviii) any material contract or agreement, not of the type covered by
or excluded from any of the other items of this Section, which by its terms
is either (1) not to be completely performed by either Company within
thirty (30) days of the date hereof or (2) is not to terminate, or is not
terminable, without penalty to the applicable Company prior to thirty (30)
days from the date hereof, and which in either case involves more than
$50,000;
(xix) any other contract or agreement which by its terms, is (1)
either not to be completely performed by either Company within twelve (12)
months of the date hereof or (2) is not to terminate, or is not terminable,
without penalty to the applicable Company prior to twelve (12) months from
the date hereof, and which in either case involves more than $50,000; and
(xx) any listing or similar agreement with a person having an
ownership or other interest in real estate or a business operation with
respect to the sale, lease or other disposition of such real estate or
business operation and any agreement with a prospective purchaser, lessee
or other transferee with respect to the purchase, lease or other transfer
of an ownership or other interest in real estate or a business operation.
(b) Schedule 2.12(b) separately sets forth all the contracts relating to
reinsurance, coinsurance or similar arrangements (the "Reinsurance Agreements")
and the effective date and termination date of each Reinsurance Agreement.
MEEMIC Insurance is not in default as to any provision of any Reinsurance
Agreement, and has satisfied all applicable underwriting standards required
thereunder in all material respects. All benefits to MEEMIC Insurance reflected
on the Statutory Statements in respect of the Reinsurance Agreements are
appropriately calculated under the terms of the Reinsurance Agreements. All
amounts owing by MEEMIC Insurance in respect of the Reinsurance Agreements are
properly reflected in the Statutory Statements and in accordance with Statutory
Accounting Principles ("SAP"). The termination of any Reinsurance Agreement will
not result in adverse tax consequences to MEEMIC Insurance. The reinsurance
recoverables, net of related reserves for uncollectible accounts, set forth on
the Statutory Statements are consistent with industry practice and past
experience.
(c) Except as set forth on Schedule 2.12(c), since December 31, 2004, no
Contract listed on Schedule 2.12(a) or (b) has been modified or terminated other
than in accordance with its terms, and neither Holdings, either Company or the
Parent has received notice of any possible modification or termination of any
such Contract.
(d) Holdings has made available to the Buyer written summaries of all oral
contracts and agreements referred to in this Section 2.12 and has made available
to the Buyer with true and correct copies of all of such written contracts and
agreements. As used in this Agreement, the terms "contract" and "agreement" each
mean and include every binding contract, agreement, commitment, understanding
and promise, whether written or oral.
13
Section 2.13. No Default. Holdings, the respective Company, or the Parent,
as applicable, has performed, or is now performing, the obligations of, and is
not in default (and would not by the lapse of time and/or the giving of notice
be in default), nor has received notice of default or notice of termination, in
respect of any Contract. To the knowledge of either Company, Holdings or the
Parent, no other party who is a party to or bound by any of the Contracts is in
default thereunder. Each of the Contracts is a legal, binding and enforceable
obligation of or against Holdings, the applicable Company, or the Parent, as
applicable. Without limiting the generality of the foregoing, to the knowledge
of either Company, Holdings or the Parent, there are no facts or circumstances
which make a default under, or termination or suspension of, any of the
contracts or obligations referred to in this Section likely to occur subsequent
to the date hereof nor has any third party raised any claim, dispute or
controversy with respect to such contracts or obligations.
Section 2.14. Renewal Rights. MEEMIC Insurance and MEEMIC Services
exclusively control all renewal rights in all insurance policies written by or
on behalf of MEEMIC Insurance, subject to claims of agents for compensation. Set
forth on Schedule 2.14 is a list of all contracts and agreements pursuant to
which MEEMIC Services acts as an agent or producer for third party insurers. To
the extent that any such agreement conditions MEEMIC Service's control of
renewal rights on MEEMIC Insurance's satisfaction of certain terms or conditions
under such agreement, MEEMIC Services has complied in all respects with such
terms and conditions.
Section 2.15. Personal Property. Schedule 2.15 contains a list of all of
the tangible personal property used by either Company or otherwise used in or
related to the Business, excluding those assets having an acquisition cost per
item of less than $5,000.
Section 2.16. Real Property.
(a) Schedule 2.16 constitutes a full and complete list of all (i) real
property owned by either Company (the "Company-Owned Real Property"), and (ii)
real property leased, or under option to be leased, to either Company (the
"Company-Leased Real Property," and together with the Company-Owned Real
Property, the "Real Property"). No real property leased by Holdings, the Parent
or any other entity is occupied or used, in whole or in part, by either Company.
(b) Schedule 2.16 sets forth a description of all encumbrances, easements
or rights of way of record granted on or appurtenant to or otherwise affecting
the Company-Owned Real Property. All Company-Leased Real Property is held under
valid and existing leases. The applicable Company enjoys peaceful and
undisturbed possession of all Real Property. All buildings or structures located
on the Real Property and occupied by either Company are of a general type or
nature customarily used for office and commercial purposes in the applicable
geographic area. All of the Company-Owned Real Property has permanent rights of
access to dedicated public highways. There is not (i) any claim of adverse
possession or prescriptive rights involving any of the Company-Owned Real
Property, (ii) any structure located on any Company-Owned Real Property which
encroaches on or over the boundaries of neighboring or adjacent properties or
(iii) any structure of any other party which encroaches on or over the
boundaries of any of such Company-Owned Real Property. Except as set forth on
14
Schedule 2.16, none of the Company-Owned Real Property is located in a flood
plain, flood hazard area, wetland or lakeshore erosion area within the meaning
of any law, regulation or ordinance. No public improvements have been commenced,
neither Company, Holdings nor the Parent have received notice that any public
improvements are planned, which in either case may result in special assessments
against or otherwise materially adversely affect any Company-Owned Real
Property. Neither the whole nor any portion of the Company-Owned Real Property
is subject to any judgment, order or decree of any governmental authority to be
sold or is being condemned, expropriated or otherwise taken with or without
payment of compensation therefor, nor, to the knowledge of either Company,
Holdings or the Parent, has any such condemnation, expropriation or taking been
proposed.
Section 2.17. Title; Condition of Assets.
(a) Each Company has good and marketable title to all of its respective
real and tangible personal property, including, without limitation, all such
properties reflected in the Balance Sheet of such Company, as applicable, free
and clear of all mortgages, liens, security interests, claims, pledges,
licenses, equities, options, conditional sales contracts, assessments, levies,
easements, covenants, reservations, restrictions, rights of way, exceptions,
limitations, charges or encumbrances of any nature whatsoever (collectively,
"Liens") except those described on Schedule 2.17 and, in the case of any
Company-Owned Real Property, Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings (and which have been
sufficiently accrued or reserved against in the applicable Balance Sheet),
municipal and zoning ordinances and easements for public utilities, none of
which interfere with the use of the property as currently utilized. None of each
Company's assets, business or properties is subject to any restrictions with
respect to the transferability thereof; and such Company's title thereto will
not be affected in any way by the transactions contemplated hereby.
(b) All property and assets owned or utilized by each Company are in good
operating condition and repair in all material respects.
Section 2.18. Environmental.
(a) No Hazardous Materials (as defined in paragraph (e) below) have been
used, stored or otherwise handled in any manner by Holdings, either Company, the
Parent or any other affiliate of the Parent on, under, in, from or affecting any
of the Real Property, other than cleaning solvents and similar materials used in
de minimis amounts in the ordinary course of business and in compliance with
Environmental Laws (as defined below). To the knowledge of either Company,
Holdings or the Parent, no current or prior owner or occupant of the Real
Property has used Hazardous Materials on, under, in, from or affecting the Real
Property in violation of any Environmental Laws.
(b) No Hazardous Materials have at any time been released into, stored or
deposited by Holdings, either Company, the Parent or any other affiliate of the
Parent within or on the Real Property, by Holdings, either Company, the Parent
or any other affiliate of the Parent into any water systems on or below the
surface of the Real Property, or by Holdings, either Company, the Parent or any
15
other affiliate of the Parent directly or indirectly onto any property or water
system adjoining, adjacent to or abutting the Real Property, or have been used
by Holdings, either Company, the Parent or any other affiliate of the Parent in
the construction of any improvements located on or about the Real Property.
(c) Neither Holdings, either Company, the Parent nor any other affiliate
of the Parent has received any notice of any violations (nor do they know of any
existing violations) of any applicable laws governing the use, storage,
treatment, transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials on, under, in, from or affecting the Real
Property and there are not any legal actions or proceedings commenced or, to the
knowledge of either Company, Holdings or the Parent, threatened by any person
with respect to any such violations.
(d) The Real Property is currently being, and has in the past been,
operated by Holdings, the Companies and the Parent in accordance with, and in
compliance with, all applicable Environmental Laws.
(e) "Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including gasoline, crude oil or any fraction thereof), defined or regulated as
such in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea formaldehyde insulation. "Environmental Laws"
are any and all federal, state, local or municipal laws, rules, orders,
regulations, statutes, ordinances, codes, decrees, requirements of any
governmental authority or other requirements of law (including common law)
regulating, relating to or imposing liability or standards of conduct concerning
protection of human health or the environment.
16
Section 2.19. Accounts Receivable. All of the accounts receivable of the
Companies shown on the Balance Sheets or thereafter acquired arose and are
collectible in the ordinary and usual course of the Business consistent with
past practice. The values at which accounts receivable are carried reflect the
amounts deemed fully collectible. Except as set forth on Schedule 2.19, all
accounts receivable of the Companies owing by Holdings, the Parent or any other
affiliate of the Parent, or by any director, officer or shareholder of Holdings,
the Companies, the Parent or any other affiliate of the Parent, have been paid
in full prior to the date hereof or shall have been paid in full prior to the
Closing Date.
Section 2.20. Bank Accounts. Holdings has provided to the Buyer a full and
complete list of all the bank accounts, including escrow accounts, of the
Companies, together with the names of persons authorized to draw thereon. Except
as otherwise disclosed to Buyer in writing prior to the date hereof, all cash in
such accounts is held in demand deposits and is not subject to any restriction
or limitation as to withdrawal. All of such accounts are reconciled on a timely
basis.
Section 2.21. Guaranties. Except as set forth on Schedule 2.21, none of the
obligations or liabilities of either Company is guaranteed by any person, firm,
association or corporation. Schedule 2.21 contains a correct and complete list
of all guarantees by, or other contingent obligations of, either Company showing
the parties and amounts involved and the expiration dates thereof.
Section 2.22. Insurance. Schedule 2.22 constitutes a full and complete list
of all policies of insurance to which either Company is a beneficiary or named
insured (the "Insurance Policies"). The applicable Company has in full force and
effect, with all premiums due thereon paid, the Insurance Policies. Schedule
2.22 also sets forth a list of insurance policies to which other entities are a
party or a beneficiary which relate to the properties, assets or operations of
the Companies or the Business and the name of such other parties. No notice of
cancellation or termination has been received with respect to any insurance
policy described in this Section. Except as specifically disclosed on Schedule
2.22, no claims have been asserted by either Company under any of the Insurance
Policies or relating to its properties, assets or operations.
Section 2.23. Employee Benefits.
(a) Neither Company has any ERISA Affiliates other than the entities
identified on Schedule 2.23. For purposes of this Section 2.23, "ERISA
Affiliate" means any trade or business, whether or not incorporated, which is a
member of a controlled group or which is under common control with the Companies
within the meaning of Section 414 of the Code or which is a member of an
"affiliated service group" within the meaning of Section 414 of the Code which
includes the Companies.
(b) Schedule 2.23 sets forth an accurate and complete list of all
compensation, retirement, savings, incentive, fringe or benefit plan, program,
policy, commitments or other similar arrangements under which any employee,
former employee, director or consultant of any of the Companies, or any
beneficiary of any such individual, is covered, is eligible for coverage, has
benefit rights under, or with respect to which Holdings or any ERISA Affiliate
17
has or may have any liability or funding obligation ("Employee Benefit Plans").
Those Employee Benefit Plans which are "employee benefit plans" within the
meaning of Section 3(2) of ERISA ("ERISA Plans") are separately identified.
Those Employee Benefit Plans which cover only employees of the Companies are
separately identified. Those Employee Benefit Plans which cover only employees
of the Companies which are non-qualified deferred compensation plans for
purposes of Section 409A of the Code are separately identified. Except as set
forth on Schedule 2.23, neither Company (i) maintains or contributes to any
Employee Benefit Plans or has any current or contingent obligation to contribute
to any Employee Benefit Plan not listed on Schedule 2.23, (ii) has any legally
binding commitment to establish any Employee Benefit Plan or modify any Employee
Benefit Plan currently in effect (except to the extent required by law), and
(iii) except as set forth on Schedule 2.23, has not maintained, established,
sponsored, participated in, contributed to, or been obligated to contribute to
any plan subject to Title IV of ERISA or Section 412 of the Code, and at no time
has either Company or any ERISA Affiliate contributed to or been requested to
contribute to any "multiemployer plan" as such term is defined in ERISA or to
any plan described in Section 413(c) of the Code.
(c) Holdings has provided or made available to the Buyer (i) accurate and
complete copies of all documents embodying each Employee Benefit Plan, (ii) the
most recent annual report (Form Series 5500) filed with respect to each ERISA
Plan for which such filing is required, including all schedules and other
attachments thereto, (iii) the most recent summary plan description, and all
subsequent summaries of material modification, with respect to each ERISA Plan,
(iv) the most recent Internal Revenue Service ("IRS") determination letter with
respect to the qualification of each ERISA Plan which is intended to be a
qualified plan within the meaning of Section 401(a) of the Code ("Qualified
Plan"), (v) all discrimination tests performed during the last three (3) plan
years with respect to each Qualified Plan, and (vi) all administrative service
agreements (including agreements with Professional Employee Organizations),
group annuity contracts, group insurance contracts, and similar written
agreements and contracts relating to any Employee Benefit Plan. All annual
reports (Form Series 5500) required to be filed with respect to each ERISA Plan
on or prior to the Closing has been, or will be prior the Closing, timely filed.
(d) The Parent, Holdings or each Company, as applicable, have timely
amended each Qualified Plan with respect to the so called "GUST Amendments" and
each such Qualified Plan is a qualified plan within the meaning of Section
401(a) of the Code and is otherwise in compliance in all material respects with
the provisions of the Code both in form and in operation.
(e) With respect to each Employee Benefit Plan, Holdings or the applicable
Company will have made, on or before the Closing Date, all contributions
required to be made on or prior to such date and will have accrued (in
accordance with GAAP) as of the Closing Date all contributions accrued but not
yet payable as of the Closing Date, including with respect to any self funded
medical benefit plan, a reasonable and appropriate accrual for incurred but not
reported claims.
(f) Except as set forth on Schedule 2.23(f), none of the Employee Benefit
Plans promises or provides retiree medical or other retiree welfare benefits to
any person except as required by applicable law and neither Holdings nor either
18
Company has represented, promised, or contracted to provide such retiree
benefits to any employee, former employee, director, consultant or other person
except as required by law.
(g) All Employee Benefit Plans are, and have been, maintained and
administered in material compliance with their provisions and with all
applicable laws, including ERISA, COBRA, the Family Medical Leave Act of 1993,
the Womens' Health and Cancer Rights Act, the Newborns' and Mothers' Health
Protection Act, and the Health Insurance Portability and Accountability Act of
1996, the Code, and any similar provisions of state law applicable to employees
of the Companies. All fiduciaries of the Employee Benefit Plans have materially
complied with the provisions of the Employee Benefit Plans and with all
applicable laws, including ERISA and the Code, with respect to the maintenance
and administration of the Employee Benefit Plans. No "prohibited transaction"
within the meaning of Section 4975 of the Code or Sections 406 or 407 of ERISA,
and not otherwise exempt under Section 408 of ERISA, has occurred with respect
to any ERISA Plan.
(h) Except to the extent disclosed on Schedule 2.23, neither the execution
and delivery of this Agreement nor the consummation of the Transactions will (i)
result in any payment (including any severance, unemployment compensation or
golden parachute payment) becoming due from either Company under any Employee
Benefit Plans, (ii) increase any benefits otherwise payable under any Employee
Benefit Plans, or (iii) result in the acceleration of the time of payment or
vesting of any such benefits payable under any Employee Benefit Plans to any
extent. Each Employee Benefit Plan can be amended, terminated or otherwise
discontinued in accordance with its terms without liability to either Company or
any ERISA Affiliate; provided, however, that the termination of any Qualified
Plan will require full vesting of all participant's accounts and benefits.
(i) There are no pending claims or legal proceedings (other than routine
benefit claims), involving any Employee Benefit Plan, the assets of any of the
trusts under such plans, either Company as the plan sponsor, as applicable, the
plan administrator or any fiduciary of any such plan. There are no
investigations or audits pending or threatened by the IRS, the Department of
Labor, the Pension Benefit Guaranty Association or any other governmental agency
of any Employee Benefit Plans, any trusts under such plans, either Company as
the plan sponsor, as applicable, the plan administrator or any fiduciary of any
such plan that have been instituted or threatened.
(j) Neither Company has the obligation to maintain, establish, sponsor,
participate in, or contribute to any Employee Benefit Plan for the benefit of
any employee, former employee, director or consultant of either Company or any
ERISA Affiliate who performs services outside of the United States.
Section 2.24. Compensation. The Companies have provided to the Buyer a full
and complete list of each director, officer, employee or consultant of each
Company, and each such person whose activities are related to the Business
(other than those officers and directors separately designated on Schedule 2.24
who are employees of Parent or any of its subsidiaries other than the
Companies), specifying their names and job designations, the total amount paid
or payable, the basis of such compensation, whether fixed or commission or a
combination thereof, and their current rate of pay, and shall provide to the
Buyer an update of such list immediately prior to the Closing.
19
Section 2.25. Certain Advances. Other than as set forth on Schedule 2.25, there
are no receivables of either Company owing by directors, officers, employees,
consultants or shareholders of Holdings, either Company, or the Parent, or owing
by any affiliate of any director or officer of Holdings, either Company, or the
Parent, other than advances in the ordinary and usual course of business to
officers, employees or consultants for reimbursable business expenses, and
advances to employees for reimbursable personal expenses not exceeding $5,000 in
the aggregate.
Section 2.26. Related Parties. Except as set forth on Schedule 2.26, no
officer or director of Holdings, either Company or the Parent, or any affiliate
of any such person, has, either directly or indirectly (a) an interest in any
corporation, partnership, firm or other person or entity which furnishes or
sells services or products which are similar to those furnished or sold by the
Companies or in the Business (other than a de minimis ownership of less than 1%
of a publicly traded corporation), or (b) a beneficial interest, or alleges a
claim of beneficial interest, in any contract or agreement to which either
Company is a party or by which it may be bound. Schedule 2.26 lists and
describes all Related Party Agreements and any beneficial interest or claim of
beneficial interest of Holdings, the Parent or any other affiliate of the Parent
in any property, asset, right or business owned, leased or used by either
Company, as well as any beneficial interest or claim of beneficial interest of
either Company in any property, asset, right or business owned, leased or used
by Holdings, the Parent or any other affiliate of the Parent.
Section 2.27. Licenses and Permits. Each Company, on behalf of itself and
its respective officers, directors, affiliates, agents, employees and authorized
representatives, has obtained and is in compliance with, and Schedule 2.27
contains a correct and complete list of, all necessary licenses, permits,
consents, approvals, orders, certificates and authorizations pertaining to the
Business or either Company (including, without limitation, such items relating
to insurance regulatory matters, but not including Statutory Insurance
Statements filed in the ordinary course of business) (collectively, "Licenses
and Permits"). There are no proceedings pending or, to the knowledge of either
Company, Holdings or the Parent, threatened which may result in the revocation,
cancellation or suspension, or any adverse modification, of any such Licenses
and Permits, nor are there any facts which may give rise to such proceedings.
All such Licenses and Permits are in full force and effect and will not be
affected or made subject to loss, limitation or any obligation to reapply as a
result of the transactions contemplated in this Agreement. Without limiting the
generality of the foregoing, (a) the Companies hold all licenses necessary to
transact their respective insurance businesses as presently conducted and do not
transact insurance business in any jurisdiction in which they do not hold a
license to conduct such business, and (b) all employees of the Companies who
engage in any activity relating to the Business requiring licensure,
individually or on behalf of the Companies, have all requisite licenses, except
in jurisdictions where any such license referred to in clauses (a) and (b) is
not material to the conduct of the Business and can be prospectively obtained
without any penalty (other than delinquent fees which are not more than $2,500
individually or $10,000 in the aggregate).
20
Section 2.28. Proprietary Rights. Schedule 2.28 contains a full and
complete list of all trademarks, trade names, service marks, copyrights and
patents, or applications therefor, owned or used by either Company or, in
connection with the Business, by Holdings, the Parent or any other affiliate of
the Parent. Each Company owns or possesses, or shall own and possess as of the
Closing Date, adequate licenses or other rights to use all patents, patent
applications, trademarks, trademark registrations, applications for trademark
registrations, trade secrets, service marks, service mark registrations,
applications for service mark registrations, trade names, labels, slogans,
claims of copyright, copyright registrations, applications for copyright
registrations, copyrights, drawings, designs, proprietary know-how or
information, or other rights with respect thereto (collectively referred to as
"Proprietary Rights"), used in the Business, and the same are sufficient to
conduct the Business as it has been and is now being conducted. To the knowledge
of either Company, Holdings or the Parent: (a) the operations of the Companies
do not conflict with or infringe any Proprietary Rights owned, possessed or used
by any third party; (b) there are no third parties whose operations conflict
with or infringe any Proprietary Rights owned, possessed or used by either
Company; and (c) there are no facts which would reasonably serve as a basis of
any claim that either Company, as applicable, does not have the unrestricted
right to use, free of any rights or claims of others, all Proprietary Rights in
the development, provision, use, sale or other disposition of any or all
products or services presently being, or contemplated to be, used, furnished or
sold in the Business.
Section 2.29. Labor.
There are no labor controversies pending or threatened against either
Company or with respect to the Business.
Section 2.30. Compliance with Practices and Law. Except as set forth on
Schedule 2.30, the Business (including reserving, marketing, investment,
financial, claims, underwriting, premium collection and refunding and other
practices) is being conducted and has been conducted, in all material respects,
in accordance with accepted insurance company practices and with all applicable
laws, rules, regulations, orders and other requirements of governmental
authorities, including, without limitation, ERISA, the Gramm-Leach-Bliley Act
and state insurance laws implementing the same, the Fair Credit Reporting Act,
all Environmental Laws, all laws, regulations and orders relating to insurance
regulation, antitrust or trade regulation, computer software licensing,
employment practices and procedures, the health and safety of employees and
consumer credit. None of Holdings, either Company, the Parent or any other
affiliate of the Parent has received within the last five years any notice of
alleged violations of any laws, rules, regulations, orders or other requirements
of governmental authorities in connection with the Business, except in the case
where such violations do not materially adversely affect the Business and can be
cured by the payment of a penalty of not more than $2,500 per violation or
$10,000 in the aggregate.
Section 2.31. Litigation. There is no claim, dispute, action, proceeding,
suit, appeal, investigation or inquiry, at law or in equity (collectively,
"Litigation"), involving either Company, or with respect to the Business or the
Companies, Holdings, the Parent or any other affiliate of the Parent, or
involving any of their assets or properties and, to the knowledge of either
Company, Holdings and the Parent, none has been threatened or is in prospect
against either Company, or, with respect to the Business or the Companies,
21
Holdings, the Parent or any other affiliate of the Parent. Neither Company, nor,
with respect to the Business or the Companies, Holdings, the Parent or any other
affiliate of the Parent, is subject to any order, writ, injunction or decree of
any court, agency, authority, arbitration panel or other tribunal. There is no
Litigation pending, or, to the knowledge of either Company, Holdings or the
Parent, threatened with respect to the execution, delivery or performance of
this Agreement by the Companies, Holdings and the Parent. For purposes of this
Agreement, Litigation shall not include suits by third parties against
policyholders in the ordinary course of business within applicable policy
limits.
Section 2.32. No Conflict. Except as set forth on Schedule 2.32, the
execution and delivery of this Agreement and any Transaction Agreement by the
Companies, Holdings and the Parent, as the case may be, and the performance of
their respective obligations hereunder or thereunder, (a) are not in violation
or breach of, and will not conflict with or constitute a default under, any of
the terms of the charter documents or bylaws of Holdings, the Companies or the
Parent, or any note, debt instrument, security agreement, lease, deed of trust
or mortgage, license, franchise, permit or any other contract, agreement or
commitment binding upon Holdings, the Companies, the Parent or any of their
affiliates, or any of their assets or properties; (b) will not result in the
creation or imposition of any lien, encumbrance, equity or restriction in favor
of any third party upon any of the assets or properties of either Company; (c)
will not conflict with or violate any applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality or
court having jurisdiction over Holdings, the Companies, the Parent and any of
their affiliates, or any of the assets or properties of either Company; and (d)
will not violate, conflict with or result in the breach of any of the terms of,
result in any modification of, accelerate or permit the acceleration of the
performance required by, otherwise give any other contracting party the right to
terminate, or constitute (with notice or lapse of time, or both) a default
under, any agreement to which any of the Companies is a party or by or to which
any of the Companies or any of their respective assets or properties may be
subject.
Section 2.33. Consents. Schedule 2.33 contains a full and complete list of
all necessary permits, authorizations, consents, waivers and approvals of third
parties, including all governmental entities, required to be obtained by
Holdings, either Company, the Parent or any other affiliate of the Parent in
connection with the execution and delivery of this Agreement and any applicable
Transaction Agreement by the Companies, Holdings or the Parent and the
performance of their respective obligations hereunder.
Section 2.34. Taxes.
(a) Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(i) "Applicable Tax Law" means any Law of any nation, state, region,
province, locality, municipality or other jurisdiction relating to Taxes,
as defined below, including regulations and other official pronouncements
of any governmental entity or political subdivision of such jurisdiction
charged with interpreting such Laws.
22
(ii) "Post-Effective Period" means, with respect to the Companies, any
Tax Period (as defined below) beginning after the Closing Date and the
portion of any Straddle Period (as defined below) beginning after the
Closing Date.
(iii) "Pre-Effective Period" means, with respect to the Companies, any
Tax Period ending on or before the Closing Date and the portion of any
Straddle Period ending on the Closing Date.
(iv) "Straddle Period" means, with respect to the Companies, any Tax
Period that begins before and ends after the Closing Date.
(v) "Taxes" mean:
(A) any income, corporation, gross income, gross receipts,
franchise, profits, gains, capital stock, capital duty,
withholding, social security, unemployment, disability,
property, wealth, welfare, stamp, excise, occupation, sales,
use, value added, payroll, premium, property, or windfall
profits tax, estimated, ad valorem or excise tax,
alternative or add-on minimum tax or other similar tax
(including any fee, assessment or other charge in the nature
of or in lieu of any tax) imposed by any governmental entity
(whether national, local, municipal or otherwise, domestic
or foreign) or political subdivision thereof;
(B) any interest, penalties, additions to tax or similar
charges; and
(C) any liability for the payment of any amount of any tax
described in clause (A) as a result of either Company being
a successor to or transferee of any other corporation at any
time on or prior to the Closing Date, any liability in
respect of any tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group
(whether any of the foregoing are imposed by law,
contractual agreement or otherwise).
(vi) "Tax Authority" means, with respect to any Tax, the governmental
entity or political subdivision thereof that imposes such Tax, and the
agency (if any) charged with the collection of such Taxes for such entity
or subdivision, including any governmental or quasi-governmental entity or
agency that imposes, or is charged with collecting, social security or
similar charges or premiums.
(vii) "Tax Period" means, with respect to any Tax, the period for
which the Tax is reported as provided under Applicable Tax Laws.
23
(viii) "Tax Returns" mean any or all returns, declarations, reports,
statements and other documents required to be filed in respect of Taxes,
and any claims for refunds of Taxes, including any amendments or
supplements to any of the foregoing.
(ix) "Code" means the Internal Revenue Code of 1986, as amended. All
citations to the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments or any substitute or successor
provisions thereto.
(b) Filing of Tax Returns. Except as set forth on Schedule 2.34:
(i) Each Company, and, with respect to the Business or the Companies,
Holdings and the Parent, have timely filed all Tax Returns, statements and
reports, including any attachment thereto or amendment thereof, with
respect to Taxes required to be filed with any Tax Authority through the
date hereof with the appropriate Tax Authorities and shall prepare and
timely file, in a manner consistent with prior years and applicable law and
regulations, all Tax Returns required to be filed on or before the Closing
Date.
(ii) All Tax Returns are true and correct in all material respects,
and Taxes relating to the Companies, and, with respect to the Business or
the Companies, Holdings and the Parent, which are due to, or claimed to be
due from them by, any Tax Authority have been paid.
(iii) There is no investigation or other proceeding pending, or, to
the knowledge of either Company, Holdings or the Parent, threatened or
expected to be commenced by any Tax Authority for any jurisdiction where
either Company, or, with respect to the Business or the Companies, Holdings
or the Parent, does not file Tax Returns with respect to a given Tax that
may lead to an assertion by such Tax Authority that either Company, or,
with respect to the Business or the Companies, Holdings or the Parent, is
or may be subject to a given Tax in such jurisdiction.
(iv) Neither Company, nor any consolidated, combined or unitary group
that includes either Company is currently the beneficiary of any extension
of time within which to file a Tax Return.
(c) Payment of Taxes. Except as set forth on Schedule 2.34, each Company,
and, with respect to the Business or the Companies, Holdings and the Parent,
have paid, and as of the Closing Date each Company, and, with respect to the
Business or the Companies, Holdings and the Parent, will have paid, or
established sufficient reserves for, each material Tax owing (whether current or
deferred) with respect to the assets, ownership, operations and activities of
the Companies, and, with respect to the Business or the Companies, Holdings and
the Parent, whether or not shown on any Tax Return, and has withheld and paid
each material Tax required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
shareholder or other party.
(d) Asset Ownership/Partnership Interests. Except as set forth on Schedule
2.34, each asset with respect to which either Company, or, with respect to the
Business or the Companies, Holdings or the Parent, claims depreciation,
amortization or similar expense for Tax purposes is owned for Tax purposes by
24
either Company, or, with respect to the Business or the Companies, Holdings or
the Parent, under Applicable Tax Law. Except as set forth on Schedule 2.34,
neither Company owns, directly or indirectly, any interest in any entity
classified as a partnership for United States Federal income tax purposes.
(e) Tax Audit History. Except as set forth on Schedule 2.34, there are
currently no audits or examinations of, or actions or proceedings relating to,
any Tax Return of either Company, or, with respect to the Business or the
Companies, Holdings or the Parent, or which includes either Company, or, with
respect to the Business or the Companies, Holdings or the Parent, presently in
progress or of which Holdings, either Company or the Parent has received notice.
There are no outstanding agreements or waivers extending the statutory period of
limitations applicable to any Tax Returns which include either Company, or, with
respect to the Business or the Companies, Holdings or the Parent. No
deficiencies for any Taxes have been proposed, asserted or assessed against
either Company, or, with respect to the Business or the Companies, Holdings or
the Parent, other than such deficiencies as are fully reflected as a liability
in the financial statements of Holdings, either Company, or the Parent, as
applicable, or are being contested and an adequate reserve therefor has been
established and is fully reflected in the financial statements of either
Company, as applicable. The amount of the reserve reflected in the most current
quarterly financial statements of each Company for any potential (asserted or
unasserted) tax deficiency is set forth on Schedule 2.34.
(f) Tax Liens. Except as set forth on Schedule 2.34, there are no liens
for Taxes upon the assets of either Company except liens for current Taxes not
yet due or payable or liens imposed for nonpayment of Taxes which are currently
being contested in good faith, and for which adequate reserves are reflected in
the financial statements.
(g) Tax Sharing or Allocation Agreements. Except as set forth on Schedule
2.34, neither Company is party to or bound by (nor will either Company, prior to
the Closing Date, become a party to or bound by) any tax indemnity, tax sharing
or tax allocation agreement or arrangement.
(h) Closing Agreements. Except as set forth on Schedule 2.34, neither
Holdings, either Company nor the Parent, as agent of the consolidated, combined
or unitary group that includes any Company, has executed, become subject to or
entered into any "closing agreement" as defined in Section 7121 of the Code or
any similar or predecessor provision thereof under the Code or other Applicable
Tax Law.
(i) Inter-Company Transactions. Except as set forth on Schedule 2.34,
neither Company will have any taxable income or gain as a result of prior
inter-company transactions that will be taken into account as a result of the
changes in ownership contemplated by this Agreement.
(j) Requests for Changes in Method of Accounting/Ruling Requests. Except
as set forth on Schedule 2.34:
(i) Neither Company, nor, with respect to the Business or the
Companies, Holdings nor the Parent, has agreed (nor has any agreement been
25
made on its behalf) to make any adjustment pursuant to Section 481(a) of
the Code (or any predecessor provision) by reason of any change in any
accounting method, and there is no application pending with any Taxing
Authority requesting permission for any changes in any accounting method.
(ii) There are no outstanding rulings, or requests for rulings, with
any Tax Authority addressed, directly or indirectly, to Holdings, either
Company, or the Parent that are, or if issued would be binding upon either
Company for any Post-Effective Period.
(k) Tax Elections and Special Tax Status. Except as set forth on Schedule
2.34:
(i) Safe Harbor Leases. Neither Company is a party to any safe harbor
lease within the meaning of Section 168(f)(8) of the Code, as in effect
prior to amendment by the Tax Equity and Fiscal Responsibility Act of 1982.
(ii) United States Real Property Holding Corporation. Neither Company
is, nor has been, a United States real property holding corporation within
the meaning of Section 897(c) (1)(A)(ii) of the Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Code and the Buyer is
not required to withhold tax on the purchase of the Shares by reason of
Section 1445 of the Code.
(iii) Foreign Person. Neither Company is a "foreign person" (as that
term is defined in Section 1445 of the Code).
(iv) Certain Compensatory Arrangements. Neither Company has currently
in effect any compensatory agreements with respect to the performance of
services for which payment thereunder would result in a nondeductible
expense pursuant to Section 280G or Section 162(m) of the Code or an excise
tax to the recipient of such payment pursuant to Section 4999 of the Code.
(l) International Boycott Determination. Except as set forth on Schedule
2.34, neither Holdings, either Company, nor the Parent has participated in an
international boycott as defined in Section 999 of the Code.
(m) Tax Basis and Tax Attributes. The Companies maintain, and have made
available to the Buyer, accurate and complete descriptions of the following
items:
(i) each Company's basis in its respective assets; and
(ii) each Company's tax carryovers (including net operating loss
carryovers and alternative minimum tax balances), excess loss accounts, tax
elections made by any member of Holdings' group of consolidated companies
affecting either Company, and deferred inter-company transactions in
Holdings' consolidated group.
Section 2.35. Underlying Documents. All underlying documents listed or
described in the Company Disclosure Schedule have heretofore been made available
26
to the Buyer or its representatives, except as expressly noted in the Company
Disclosure Schedule. All such documents furnished to the Buyer or its
representatives are true and complete copies, and there are no amendments or
modifications thereto, except as expressly noted in the Company Disclosure
Schedule. The minute books of each Company contain full, complete and accurate
records of all meetings and other corporate actions taken by the directors and
shareholders of each Company. All portions of the minute books of Holdings or
the Parent that relate to either Company or the Business have been provided to
Buyer, and such portions are full, complete and accurate records.
Section 2.36. Insurance Business, Market Conduct and Bad Faith Claims.
(a) To the knowledge of either Company, Holdings or the Parent, there are
no facts or circumstances related to the Business that could reasonably be
expected to result in Holdings, either Company or the Parent being liable for
any bad faith claim or any market conduct claim with respect to their respective
(i) claims-making procedures or (ii) marketing and sale of insurance products.
(b) To the knowledge of either Company, Holdings or the Parent, all
benefits claimed by any person under any insurance contract written by MEEMIC
Insurance have in all material respects been paid (or provision for payment
thereof has been made) in accordance with the terms of the contracts under which
they arose, such payments were not materially delinquent and were paid (or will
be paid) without fines or penalties, except for any such claim for benefits for
which MEEMIC Insurance reasonably believes or believed that there is a
reasonable basis to contest payment and is taking such action.
(c) The underwriting standards utilized and rates and rating factors and
criteria applied by MEEMIC Insurance with respect to its outstanding insurance
contracts as of the date hereof have been previously disclosed to Buyer and with
respect to any such contract reinsured in whole or in part, conform in all
material respects to the standards and ratings required pursuant to the terms of
the related reinsurance, coinsurance, or other similar contracts.
(d) Each insurance agent or broker, at the time such agent or broker
wrote, sold or produced business for the Companies, to the extent required by
law, was duly appointed by MEEMIC Insurance to act as its agent and was, to the
knowledge of either Company, Holdings or the Parent, as the case may be, duly
licensed as an insurance agent or broker (for the type of business written, sold
or produced by such insurance agent or broker) in the particular jurisdiction in
which such agent or broker wrote, sold or produced such business for MEEMIC
Insurance, and, to the knowledge of either Company, Holdings or the Parent, no
such insurance agent or broker violated (or with or without notice or lapse of
time or both would have violated) in any material respect any term or provision
of any law or regulation applicable to any aspect (including but not limited to,
the marketing, sale or production) of the business of MEEMIC Insurance.
(e) No outstanding insurance contract issued, reinsured, or underwritten
by MEEMIC Insurance entitles the holder thereof or any other person to receive
dividends, distributions, or to share in the income of MEEMIC Insurance or to
receive any other benefits based on the revenues or earnings of MEEMIC Insurance
or any other person.
27
(f) All outstanding insurance contracts issued, reinsured, or underwritten
by MEEMIC Insurance are, to the extent required under applicable laws, on forms
which were submitted to and approved by the insurance regulatory authority of
the jurisdiction where such insurance contracts were issued or delivered, or
have been filed with and not objected to by such authority within the period
provided for objection. The rates charged for insurance under the insurance
contracts issued by MEEMIC Insurance have been determined in accordance with
usual and customary actuarial principles and practices, and are not based upon
any underwriting factors prohibited by law.
(g) Set forth on Schedule 2.36(g) is and shall be the number of in-force
insurance contracts written by MEEMIC Insurance as of each of December 31, 2004,
the date that is the end of the calendar month prior to the date of this
Agreement and the date that is the end of the calendar month prior to the date
of Closing.
(h) To the knowledge of either Company, Holdings or the Parent, there have
been no accidents, injuries or claims occurring in the State of Michigan that
are insured in whole or in part by a private passenger auto policy issued by
MEEMIC Insurance to a non-Michigan resident ("PIP Claims").
Section 2.37. Assets Necessary to Business. The Included Assets include all
property and assets, tangible and intangible, and all leases, licenses and other
agreements, which, together with the Excluded Assets, are necessary to permit
the Buyer to carry on, or are currently used or held for use in, the Business as
presently conducted.
Section 2.38. Brokers or Finders. Neither Company has incurred, nor will
either of them incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or the transactions contemplated hereby.
Section 2.39. Adverse Communications. Except as set forth on Schedule 2.39,
neither Holdings, the Companies nor the Parent has received or is aware of:
(a) any communication from A.M. Best, or any other fact or circumstance,
inconsistent with the expectation that MEEMIC Insurance will retain an A.M. Best
rating of at least "A-";
(b) any communication from any agent, broker or third party administrator
which generates for MEEMIC Insurance, either directly or indirectly, more than
$50,000 in annual gross written premium, which communication cancelled, gave
notice of cancellation or threatened cancellation of the relationship between it
and MEEMIC Insurance or the relationship between it and any of its insureds; or
(c) any communication from any insurance regulatory authority which
alleged or complained that the Companies, or made inquiry to determine whether
the Companies, had not complied with any law or regulation in any material
respect.
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Section 2.40. Agents, Brokers and TPA's.
Schedule 2.40 lists each person through which the Companies place or sell
insurance who have generated gross written premium on MEEMIC Insurance's
policies since January 1, 2003, including therein (i) the amount per year
generated by each such person of gross written premium on MEEMIC Insurance's
policies and (ii) any loans by Holdings or either of the Companies to any such
persons or any affiliate thereof outstanding at any time during the period since
January 1, 2003. Neither Company, Holdings nor the Parent has been advised in
writing that any agent or broker listed on Schedule 2.40 intends to cancel its
relationship with any of the Companies or any relationship between it and any
insured of MEEMIC Insurance or reduce its writings with or through MEEMIC
Insurance.
Section 2.41. Computer Hardware and Software.
(a) The computer hardware and software systems of the Companies are
functioning in all material respects in accordance with their respective
functional specifications.
(b) Such computer hardware and software systems are sufficient to meet in
all material respects all current management information, financial reporting,
underwriting and claims processing needs.
(c) The Companies have, either through ownership or through a valid lease
or license, all material rights necessary to use such computer hardware and
software systems in the manner and for the purposes they are currently used.
(d) The Companies are currently obtaining maintenance services sufficient
to keep such computer hardware and software systems in good operating condition.
(e) The Companies, through daily back-ups, are currently storing all
computerized data at off-site premises adequate for such purpose.
Section 2.42. The Foundation. (a) MEEMIC Insurance is the sole member of
The MEEMIC Foundation for the Future of Education, a Michigan not-for-profit
corporation that is duly organized, validly existing and in good standing under
the laws of Michigan (the "Foundation"). Prior to the date hereof, Holdings has
made available to the Buyer true and complete copies of the articles of
incorporation and bylaws of the Foundation, as currently in effect. Since its
inception, the only activities the Foundation has conducted has been to provide
financial assistance to students, educators and schools in the form of
mini-grants and scholarships and to manage a portfolio of investments made by
the Foundation upon the receipt of cash contributions from MEEMIC Insurance, and
the Foundation has all requisite corporate power and authority to own such
investment assets as are now owned and to conduct such activities as now
conducted.
(b) There has been made available to the Buyer a true, correct and
complete copy of the balance sheet of the Foundation as of June 30, 2005 (the
"Foundation Balance Sheet"). The Foundation Balance Sheet presents fairly the
financial condition, assets and liabilities of the Foundation as of its date and
has been prepared in accordance with GAAP in accordance with the books and
records of the Foundation, which books and records are correct and complete in
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all material respects. The Foundation does not have any liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
whether due or to become due, and whether or not required to be disclosed on a
balance sheet prepared in accordance with GAAP, not fully or properly reflected
or reserved against in the Foundation Balance Sheet.
(c) The Foundation has never had any employees, has never paid any
compensation of any kind to any directors or officers and has never maintained
any employee benefit plans. The Foundations sole assets consist of cash and
investments in marketable securities and the Foundation does not own or lease
any other real or personal property (tangible or intangible). Holdings has
provided to the Buyer a full and complete list of all the bank accounts and
investment accounts of the Foundation, together with the names of persons
authorized to draw thereon or direct investments with respect thereto. The
Foundation is not a party to any contracts or agreements, whether written or
oral, other than an oral agreement between the Foundation and MEEMIC Insurance
pursuant to which MEEMIC Insurance provides certain accounting and support
services to the Foundation in exchange for $3,000 per calendar quarter.
(d) The Foundation has made all requisite filings with the Attorney
General of the State of Michigan and all other federal, state and local
governmental authorities regulating charitable organizations. The Foundation,
its directors, its officers and MEEMIC Insurance, as member, have not engaged in
any activity that would constitute a breach of fiduciary duty and have not
engaged in any activity which could result in the assessment of taxes or
penalties or could jeopardize the Foundation's tax exempt status, including,
without limitation, self dealing (as proscribed by Section 4941 of the Code),
failure to distribute income (as proscribed by Section 4942 of the Code),
maintaining excess business holdings (as proscribed by Section 4943 of the
Code), making jeopardy investments (as proscribed by Section 4943 of the Code)
or making taxable expenditures (as proscribed by Section 4945 the Code). The
Foundation is conducting, and has conducted, its activities in accordance with
all applicable laws, rules, regulations, orders and other requirements of
governmental authorities, in all material respects. None of Holdings, either
Company, the Foundation, the Parent or any other affiliate of the Parent has
received any notice of alleged violations of any laws, rules, regulations,
orders or other requirements of governmental authorities in connection with the
Foundation.
(e) The Foundation has received a determination letter from the IRS
confirming that the Foundation is a private foundation exempt from federal
income tax under Section 501(c)(3) of the Code. The Foundation has timely filed
all Tax Returns, statements and reports, including any attachment thereto or
amendment thereof, with respect to Taxes required to be filed with any Tax
Authority through the date hereof with the appropriate Tax Authorities and shall
prepare and timely file, in a manner consistent with prior years and applicable
law and regulations, all Tax Returns required to be filed on or before the
Closing Date. All Tax Returns are true and correct, and Taxes relating to the
Foundation, which are due to, or claimed to be due from them by, any Tax
Authority have been paid. There are currently no audits or examinations of, or
actions or proceedings relating to, any Tax Return of the Foundation.
(f) There is no Litigation involving the Foundation or any of its assets
and, to the knowledge of either Company, Holdings or the Parent, none has been
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threatened or is in prospect against the Foundation. The Foundation is not
subject to any order, writ, injunction or decree of any court, agency,
authority, arbitration panel or other tribunal.
Section 2.43. Disclosure of Material Facts. The representations, warranties
and information contained in this Article II and in the Company Disclosure
Schedule, and any other documents or information furnished to the Buyer by or on
behalf of the Companies, the Parent or Holdings, do not contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements contained herein or therein not misleading in light of the
circumstances under which they were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer makes the following representations and warranties, each of which
is true and correct on the date hereof, shall remain true and correct to and
including the Closing Date (other than those representations and warranties
provided as of a specific date), and shall survive the Closing as herein
provided. All representations and warranties of the Buyer are made subject to
the exceptions specifically disclosed by the Buyer in the disclosure schedule
delivered contemporaneously with the execution of this Agreement, which shall
consist of the aggregate of Schedules specifically set forth in this Article
(the "Buyer Disclosure Schedule").
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Section 3.1. Incorporation and Good Standing of the Buyer. The Buyer is a
corporation duly incorporated and validly existing and in good standing under
the laws of the State of Michigan.
Section 3.2. Validity of Agreement. The Buyer has full corporate power and
authority to execute and deliver this Agreement and any applicable Transaction
Agreement. This Agreement constitutes, and each Transaction Agreement to which
the Buyer is a party, when executed and delivered, will constitute, the valid
and binding obligation of the Buyer, as applicable, enforceable against the
Buyer in accordance with its terms, subject to bankruptcy, insolvency and other
laws affecting creditors' rights generally. The execution and delivery of this
Agreement and any applicable Transaction Agreement by the Buyer, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by the boards of directors of the Buyer and, as required, its
respective corporate parents, and such executions and delivery do not require
the consent, approval or authorization of any other person, public authority or
entity.
Section 3.3. No Conflict. The execution and delivery of this Agreement and
any Transaction Agreement by the Buyer, and the performance of its obligations
hereunder or thereunder, are not in violation or breach of, and will not
conflict with or constitute a default under, any of the terms of the articles of
incorporation or bylaws of the Buyer, or any note, debt instrument, security
instrument, deed of trust or mortgage or any other contract, agreement or
commitment binding upon the Buyer or its assets or properties, and will not
result in the creation or imposition of any lien, encumbrance, equity or
restriction in favor of any third party upon any of the assets or properties of
the Buyer, or conflict with or violate any applicable law, regulation, judgment,
order or decree of any government, governmental instrumentality or court having
jurisdiction over the Buyer or its assets or properties.
Section 3.4. Consents. Schedule 3.4 contains a full and complete list of
all necessary permits, authorizations, consents, waivers and approvals of third
parties, including all governmental entities, required to be obtained by the
Buyer or any other affiliate of the Buyer in connection with the execution and
delivery of this Agreement and any applicable Transaction Agreement by the Buyer
and the performance of its obligations hereunder.
Section 3.5. Brokers or Finders. Except as set forth on Schedule 3.5, the
Buyer has not incurred, nor will the Buyer incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or the transactions contemplated
hereby.
Section 3.6. Financing. The Buyer has sufficient cash, or access to cash,
to fund the Purchase Price.
ARTICLE IV
COVENANTS
Section 4.1. Conduct of Business. Except for matters required by this
Agreement, and such other matters, if any, as may be consented to by the Buyer
in writing, from the date of this Agreement until the Closing Date, each
Company, and, with respect to the Business or the Companies, Holdings and the
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Parent, shall, and MEEMIC Insurance shall cause the Foundation to, (a) conduct
business only in the ordinary and usual course and shall not engage in any
activity or enter into any transaction outside the ordinary and usual course of
business, (b) maintain in effect all licenses and permits necessary to carry on
its business as currently conducted, (c) continue in full force and effect
without material modification all existing policies or binders of insurance
currently maintained in respect of its assets, properties, business, operations,
employees, officers or directors, and (d) shall not enter into any material
contracts. Each Company, and, with respect to the Business or the Companies,
Holdings and the Parent, shall, and MEEMIC Insurance shall cause the Foundation
to, maintain its minute books, stock record and transfer books and accounts and
records in the ordinary and usual manner and in accordance with GAAP and SAP, as
applicable.
Section 4.2. Preservation of Business. Except for matters required by this
Agreement, and such other matters, if any, as may be consented to by the Buyer
in writing, from the date of this Agreement until the Closing Date, the
Companies, and, with respect to the Business or the Companies, Holdings and the
Parent, shall each use its best efforts to preserve intact its business
organization and to preserve the goodwill of the Companies as to employees,
suppliers, customers and others having business relations with the Companies.
Without limitation of the foregoing, the Companies, and, with respect to the
Business or the Companies, Holdings and the Parent, shall continue to service
the Business as it has been serviced prior to January 1, 2005, including keeping
all claims service current. In order to further preserve employee goodwill as
relates to the transactions contemplated by this Agreement, the Companies,
Holdings and the Parent agree that they will not disseminate any written
materials to employees of the Companies (other than copies of press releases
approved pursuant to Section 4.7 below), or otherwise conduct any formal
presentations, regarding the transactions contemplated by this Agreement without
first obtaining the prior approval of the Buyer.
Section 4.3. Negative Covenants. Except as contemplated by this Agreement,
from the date of this Agreement through the Closing Date, (a) neither Holdings,
either Company nor the Parent shall, and MEEMIC Insurance shall cause the
Foundation not to, without the prior written consent of the Buyer, take or cause
to be taken any action described in clauses (c) through (t) of Section 2.9
hereof; provided, however, that the Companies shall be permitted, to the extent
lawfully allowed, to authorize, declare and pay to Holdings cash dividends on
the Shares in an aggregate amount not to exceed $73,000,000 less the amount of
the Prior 2005 Dividends (the "Permitted Dividend"), and (b) neither Company nor
the Foundation shall, without the prior written consent of the Buyer, enter into
any Related Party Agreement.
Section 4.4. Updating of the Company Disclosure Schedule. From the date
hereof until the Closing Date, the Companies, Holdings and the Parent (a) shall
keep current the Company Disclosure Schedule and (b) shall promptly notify the
Buyer of any changes or additions or events which may, after the lapse of time,
cause any change or addition in the Company Disclosure Schedule which could
reasonably be determined to result in a Material Adverse Effect. In addition to
the foregoing, the Companies shall provide the Buyer with a written report on
the date that is thirty (30) days from the date hereof, and following each
additional thirty-day (30-day) period thereafter until the Closing Date with an
updated, final Company Disclosure Schedule to be delivered on the Closing Date,
33
advising the Buyer whether there have been any changes to the information in the
Company Disclosure Schedule since the date of the previous update and if so,
advising the Buyer in writing of such changes. From the date hereof until the
Closing Date, the Buyer shall keep current the Buyer Disclosure Schedule and
shall promptly notify the Parent of any changes or additions or events which
may, after the lapse of time, cause any change or addition to the Buyer
Disclosure Schedule. This covenant and any notices by the Companies, Holdings or
the Parent, on the one hand, or the Buyer, on the other, hereunder shall not be
deemed in any way to constitute a waiver by the counterparty of the conditions
herein, which provides in part that the representations and warranties of each
of the Companies, Holdings and the Parent, on the one hand, and the Buyer, on
the other, set forth herein shall be true and correct on the date hereof and on
the Closing Date, nor shall any such notices cure any breach of any
representation or warranty which is inaccurate.
Section 4.5. Access to Information. Upon reasonable notice and subject to
applicable laws relating to the exchange of information and to the
Confidentiality Agreement dated March 14, 2005 (the "Confidentiality
Agreement"), each of the Buyer, the Companies, Holdings and Parent shall afford
to the officers, employees, accountants, counsel and other representatives of
the other party, access, during normal business hours during the period prior to
the Closing Date, to all its properties, books, contracts, commitments and
records and, during such period, each of the Buyer, the Companies, Holdings and
Parent shall, and shall cause their respective subsidiaries to, make available
to the other party (i) a copy of each report, schedule, registration statement
and other document filed or received by it during such period pursuant to the
requirements of federal securities laws or state insurance laws; (ii) all other
information concerning its business, properties and personnel as such party may
reasonably request; and (iii) any other information, confidential or otherwise,
relating to the Agreement or the Transaction Agreements which has not been
provided to the other party and is necessary for disclosure in the filing to be
made under the HSR Act or the filings of any Form A or Form D to be filed with
the Michigan Office of Financial and Insurance Services. Without limiting the
generality of the foregoing, upon the Buyer's request, the Companies shall also
give the Buyer or its representatives access to meet with the employees of the
Companies upon reasonable notice, during normal business hours and in a manner
that shall not be unduly disruptive on the Business in order to allow the Buyer
to make a presentation to the employees regarding the transactions contemplated
by this Agreement. No investigation by any of the parties or their respective
representatives shall affect the representations, warranties, covenants or
conditions of the other set forth in this Agreement.
Section 4.6. Fulfillment of Conditions and Covenants. No party will take
any course of action inconsistent with satisfaction of the requirements or
conditions applicable to it set forth in this Agreement. Each party shall
promptly do all such acts and take all such measures as may be appropriate to
enable it to perform as early as possible the obligations herein provided to be
performed by it.
Section 4.7. Press Releases. No party will issue or authorize to be issued
any press release or similar announcement concerning this Agreement or any of
the transactions contemplated hereby without the prior approval of the other
parties, which approval shall not be unreasonably withheld and shall be given,
following an opportunity to review and revise the scope and content of such
disclosures, in order to allow compliance with the disclosure requirements of
applicable securities laws and state regulatory laws.
34
Section 4.8. Consents. Each party shall use its best efforts to obtain and
to cooperate with each other party in the effort to obtain, as soon as
reasonably practicable, all permits, authorizations, consents, waivers and
approvals from third parties or governmental authorities necessary to consummate
this Agreement and the transactions contemplated hereby or otherwise necessary
or desirable for the Companies to continue operating the Business following the
Closing, including, without limitation, consents with respect to the matters set
forth on Schedule 2.33. Each party shall pay its own expenses in connection with
fulfilling its obligations under this Section, except as set forth in Section
10.5 below. Each party shall provide to the other parties copies of all
non-confidential portions of applications filed or submitted with governmental
authorities in connection with this Agreement and shall keep the other parties
apprised of the status of matters relating to the completion and approval of the
transactions contemplated by this Agreement.
Section 4.9. Certain Notifications. Each party shall promptly notify the
others in writing of the occurrence of any event known to such party which will
or could reasonably be expected to result in the failure to satisfy any of the
conditions to the obligations of such other parties specified in this Agreement.
Section 4.10. No Solicitation. Except as otherwise specifically
contemplated by this Agreement, during the term of this Agreement, each Company,
Holdings and the Parent agree that none of them, nor any of their respective
affiliates, officers, directors, employees or representatives, shall, directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any person or group (other
than the Buyer or any affiliate, associate or designee of the Buyer) concerning
any proposal for an acquisition of all or any substantial part of the business
or properties of the Business or of any capital stock of Holdings or either
Company, whether by merger, tender offer, purchase of assets or shares of
capital stock or otherwise (an "Acquisition Proposal"). The Companies, Holdings
and the Parent agree to promptly notify the Buyer if any Acquisition Proposal,
offer or substantial contact with respect thereto is made by any person in
writing.
Section 4.11. Competitive Activities; Non-Solicitation of Employees.
(a) Each of Holdings and the Parent agrees that, for a period ending on
the fifth anniversary of the Closing Date (the "Restrictive Period"), it shall
not, directly or indirectly, without the consent of the Buyer, engage, anywhere
in the United States, in marketing, underwriting or servicing personal lines
insurance to individuals (or their families) who are targeted because they are
employed by educational institutions (the "Restricted Business"). Further, each
of Holdings and the Parent agrees on its behalf and on behalf of its affiliate
entities that none of them will participate, directly or indirectly, in the
management or operation of, or become an investor in (other than with respect to
ownership of less than one percent (1%) of the outstanding shares of any class
of equity securities listed on a national securities exchange or quoted on the
Nasdaq National Market or SmallCap System), any corporation, partnership entity,
limited liability company, venture or enterprise of whatever kind, which is
engaged in the Restricted Business anywhere in the United States; provided,
however, that the foregoing limitation shall not apply to any entity that may
hereafter become affiliated with the Parent as a result of such entity's
acquisition of the Parent. Notwithstanding the restrictions set forth in this
Section 4.11, the Parent and its affiliated entities shall not be prohibited
from continuing any existing marketing programs targeting non-educator affinity
groups, such as healthcare providers, whose members may incidentally include
educators.
35
(b) Each of Holdings and the Parent agrees on its behalf and on behalf of
its affiliate entities that none of them will, directly or indirectly, alone or
with others, (i) during the Restrictive Period, solicit or assist anyone else in
the solicitation of, any employee of any of the Companies to terminate his or
her employment with any of the Companies, or (ii) until the second anniversary
of the Closing Date, employ (or engage as a consultant) those individuals listed
on Schedule 4.11(b).
(c) If any provision contained in this Section 4.11 shall for any reason
be held invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision of this
Section, but this Section shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. It is the intention of
the parties that if any of the restrictions or covenants contained herein is
held to cover a geographic area or to be for a length of time which is not
permitted by applicable law, or in any way construed to be null, void and of no
effect, but to the extent such provision would be valid or enforceable under
applicable law, a court of competent jurisdiction shall construe and interpret
or reform this Section to provide for a covenant having the maximum enforceable
geographic area, time period and other provisions (not greater than those
contained herein) as shall be valid and enforceable under such applicable law.
Holdings and the Parent each acknowledges that the Buyer would be irreparably
harmed by any breach of this Section and that there would be no adequate remedy
at law or in damages to compensate the Buyer for any such breach and that, in
addition to any relief at law which may be available to the Buyer for such
violation or breach or regardless of any other provision in this Agreement, the
Buyer shall be entitled to injunctive and other equitable relief as the court
may grant after considering the intent of this Section. Notwithstanding anything
to the contrary in this Agreement, the Buyer's rights under this Section 4.11
may be assigned by the Buyer, without the consent of Holdings or the Parent, in
connection with a sale of the Companies or the Business.
36
Section 4.12. Use of Names. Following the Closing Date, neither Holdings, the
Parent nor any of their affiliates shall, directly or indirectly, without the
prior written consent of the Buyer, make any use of the name "MEEMIC" or any
derivative or variant thereof (for purposes of clarification, "make any use of"
shall not include making reference to the Companies in any SEC, insurance
regulatory or other presentation which relates to a period prior to the
Closing). Immediately following the Closing, Holdings shall file an amendment to
its certificate of incorporation to amend its name so as to not include the name
"MEEMIC" or any derivative or variant thereof. Prior to the Closing, Holdings
shall transfer and assign to MEEMIC Insurance or to MEEMIC Services, as directed
by the Buyer, any and all rights to the name "MEEMIC", including, without
limitation and registered trademarks and trade names and any common law rights
to use such name, along with any other rights Holdings may have with respect to
any other trademarks and trade names used in the Business.
Section 4.13. Investment Portfolio. The Companies shall cause the
investment portfolio of each Company to be maintained prior to the Closing in
accordance with past investment policies and practices of Holdings.
Section 4.14. General Release. At the Closing, Holdings and the Parent
shall deliver a general release to the Buyer, in the form of Exhibit 4.14
attached hereto (the "General Release").
Section 4.15. Intercompany Accounts and Contract. Schedule 4.15 contains a
complete list of all intercompany balances, including loans and advances and
commitments with respect thereto, in respect of the Companies or the Foundation,
on the one hand, and Holdings, the Parent or Parent's affiliates (other than the
Companies), on the other hand as of the last day of the calendar month ending
immediately prior to the date of this Agreement. All intercompany balances
listed on Schedule 4.15 (other than those between the Companies) shall have been
satisfied and all commitments with respect thereto shall have been terminated on
or before the Closing Date, other than the Final Tax Allocation Amount as
provided in Section 5.1 below. The Parent shall cause all intercompany contracts
or other arrangements (including, but not limited to, those relating to
allocations of expenses, personnel, services or facilities (including that
certain Expense Allocation Agreement, dated July 1, 1999, between MEEMIC
Insurance and ProNational Insurance Company) between or among the Companies or
their affiliates to be unwound and amended, without liability or obligation to
the Companies, to remove each of the Companies as a party to such intercompany
contracts.
Section 4.16. Environmental Audit. The Buyer, at its sole expense, may
retain a firm engaged in the business of environmental engineering to conduct
such environmental audits of any of the Real Property as the Buyer, in its sole
discretion, shall consider necessary or appropriate.
Section 4.17. Assumption of Severance Agreements. At the Closing, the Buyer
shall assume the obligations of the Parent and Holdings under, (a) the Release
and Severance Compensation Agreement, dated as of June 15, 2001, among the
Parent, Holdings, MEEMIC Insurance and Lynn Kalinowski and (b) the Release and
Severance Compensation Agreement, dated as of June 15, 2001, among the Parent,
Holdings, MEEMIC Insurance and Christine Schmitt (together, the "Release and
Severance Compensation Agreements"), to the extent that the Release and
37
Severance Compensation Agreements have not otherwise been terminated in
accordance with the terms and provisions of those certain letter agreements,
dated as of November 4, 2005, among the Parent, Holdings and each of Lynn
Kalinowski and Christine Schmitt pursuant to which the executives may be
entitled to certain fees upon the consummation of the Acquisition (the "Success
Fee Letters"). In the event that the Parent or Holdings default in their payment
obligations under the Success Fee Letters, the Buyer, at its option, shall be
entitled to cure such breach(es) and to seek reimbursement from the Parent
and/or Holdings for the cost of curing such breach(es) as an indemnifiable claim
hereunder.
Section 4.18. Delivery of Business Records. The Companies, Holdings and the
Parent, on or immediately prior to the Closing Date, shall deliver to the Buyer
all material documents and records related to the Companies or the Business,
including all stock records and corporate minute books of the Companies.
Section 4.19. Financial Statements. The Parent and Holdings on the one
hand, and the Buyer and the Companies on the other, shall reasonably cooperate
with each other and each other's agents, including legal counsel and public
accounting firms, in connection with the preparation, filing or subsequent
examination of (a) financial statements prepared by the Parent or Holdings with
respect to periods prior to the Closing Date, or (b) financial statements
prepared by the Companies or the Buyer with respect to periods on or after the
Closing Date. Such cooperation shall include each party making all applicable
information and documents in its possession relating to the Companies available
to the other party. Each of the parties shall also make available to the other
party, as reasonably requested and available, personnel (including officers,
directors, employees and agents) responsible for preparing, maintaining, and
interpreting information and documents relevant to financial information of the
Companies, and personnel reasonably required as witnesses or for purposes of
providing information or documents in connection with any administrative or
judicial proceedings relating to financial information of the Companies. Each
requesting party shall reimburse the applicable counterparties for the
reasonable costs and expenses incurred by each such counterparty in complying
with this subsection. No party is required to provide the other with any
confidential or proprietary information of either Company, Holdings, Parent, the
Buyer or any of the Buyer's affiliates, as the case may be, after the Closing
Date, except to the extent required for the filing of financial statements and
resolution or investigation of such financial statements that relate to
Pre-Effective Periods. Any information, documents and/or other assistance
provided pursuant to this Section 4.18 shall be made without representation or
warranty as to its accuracy (except to the extent otherwise represented or
warranted to under Article II above).
Section 4.20. Reserve Adequacy Audit. The parties agree that MEEMIC
Insurance shall engage it current actuarial firm, or another independent
actuarial consultant mutually acceptable to the parties (the "Actuary"), to
conduct a normal reserve review as of each of December 31, 2005 and June 30,
2006 (the "Reserve Reviews"). In connection with the June 30, 2006 Reserve
Review, the Actuary shall determine its best estimate of reserves (net of
reinsurance, for purposes of this analysis all reinsurance balances are assumed
to be valid and fully collectible) for loss and loss adjustment expense claim
liability arising out of and in connection with accident periods ending on or
before the Closing Date ("Actuary's Best Estimate"). The Actuary's Best Estimate
shall be determined by calculating the best estimate of reserves as of December
31, 2005 and rolling forward such amount to the Closing Date by taking into
38
account adjustments for claim payments during the period from December 31, 2005
up to the Closing Date and adding thereto the estimated amount of ultimate
losses for claims incurred during such period, in each case as calculated in
accordance with commonly accepted actuarial standards consistently applied;
provided, however, that if the Closing occurs on or before January 6, 2006, the
Actuary's Best Estimate will be calculated as of December 31, 2005 with no roll
forward to the actual Closing Date. In the event that the Actuary's Best
Estimate is greater than the amounts so reserved in the balance sheet of MEEMIC
Insurance as of the Closing Date (or if the Closing occurs on or before January
6, 2005, the audited balance sheet of MEEMIC Insurance as of December 31, 2005),
as prepared by MEEMIC Insurance consistent with the Balance Sheets, Holdings and
the Parent agree (subject to the completion of the additional review process
described below), jointly and severally, to pay to the Buyer the amount by which
such excess amount exceeds $3,000,000, after factoring all of the associated tax
benefits associated with the increase in reserves based on a marginal tax rate
of 35% (such amount to be paid being referred to as the "Reserve Deficiency
Reimbursement"). Holdings and the Parent will have the option of retaining a
nationally recognized independent actuary of their choosing (the "Second
Actuary") and at their cost to perform an independent review of reserves. If the
results of the review of the Second Actuary result in a decrease in the Reserve
Deficiency Reimbursement by more than $1,000,000, then the parties agree to have
Actuary and the Second Actuary appoint a third actuary (the costs of which will
be shared equally by Holdings and the Buyer) and the average of all three
studies will be utilized for purposes of the calculation of the Reserve
Deficiency Reimbursement. Each party shall be entitled to copies of the Reserve
Review results when, and in the form, delivered by the Actuary, the Second
Actuary and the third actuary (subject to each party delivering a standard form
reserve release letter as may be requested by the applicable actuary). Holdings
and/or the Parent shall remit the Reserve Deficiency Reimbursement to the Buyer
within fifteen (15) days of receipt of the final June 30, 2006 Reserve Review
results.
Section 4.21. Continuation of Employee Plans.
(a) From and after the Closing, the Employee Benefit Plans in effect as of
the date of this Agreement and at the Closing, other than any Employee Benefit
Plans sponsored by the Parent (including, without limitation the Stock Ownership
Plan and any of the Parent's stock option plans) shall remain in effect with
respect to the current and former employees of the Companies (the "Company
Employees") covered by such Employee Benefit Plans at the Closing, until such
time as the Buyer shall otherwise determine. The Buyer agrees that it will honor
all Employee Benefit Plans in accordance with their terms as in effect at the
Closing, subject to any amendment or termination thereof that may be required or
permitted by the plans or applicable law. The Buyer will review all Employee
Benefit Plans to determine whether to maintain, terminate or continue such
plans.
(b) Company Employees who continue in employment with the Companies
("Continuing Employees") who become participants in an employee benefit plan of
the Buyer or its affiliates ("Buyer Employee Plan") shall, for purposes of
determining eligibility for and for any applicable vesting periods of such
employee benefits only (and not for benefit accrual purposes unless specifically
set forth herein) be given credit for meeting eligibility and vesting
requirements in such plans for service as an employee of the Companies or any
predecessor thereto prior to the Closing; provided, however, that credit for
benefit accrual purposes will be given only for purposes of the Buyer's vacation
39
policies or programs. In the event of any termination of any health plan of the
Companies or consolidation with any health plan of the Buyer or its affiliates,
the Buyer shall make available to Continuing Employees and their dependents
employer-provided health coverage on substantially the same basis as it provides
such coverage to other employees of the Buyer and its affiliates. Unless a
Continuing Employee affirmatively terminates coverage under a health plan of
Companies prior to the time that such Continuing Employee becomes eligible to
participate in the Buyer's health plan, or unless a Continuing Employee and/or a
dependent of a Continuing Employee has an event which, under the terms of the
Companies' health plan, results in a loss of coverage, no coverage of any of the
Continuing Employees or their dependents shall terminate under any of the
Companies health plans prior to the time such Continuing Employees and their
dependents become eligible to participate in the health plans, programs and
benefits common to all employees of Buyer and their dependents. All Company
Employees who cease participating in a Company health plan and become
participants in a Buyer Employee Plan during any plan year shall receive credit
toward the applicable deductible under the Buyer Employee Plan for any amounts
paid by the employee under the Company's health plan during the applicable plan
year, upon substantiation, in a form satisfactory to the Buyer that such
payments have been made.
(c) It is understood that the Buyer and the Companies are "at-will"
employers. Nothing in this Section 4.21 shall be interpreted as preventing the
Buyer or either Company from terminating the employment of any individual or
from amending, modifying or terminating any Buyer Employee Plans, or any
Employee Benefit Plans, or any benefits under any Buyer Employee Plans or any
Employee Benefit Plans, or any other contracts, arrangements, commitments or
understandings, in accordance with their terms and applicable law.
(d) The Parent's board of directors shall determine that the Acquisition
will result in a change of control as contemplated under the Parent's stock
option plan, such that all outstanding options granted to employees of the
Companies to purchase capital stock of the Parent which are not vested as of the
Closing Date shall automatically vest upon the Closing, which vesting shall
occur without cost to the Companies or the Buyer. Further, the Parent
acknowledges and agrees that upon the consummation of the transactions
contemplated by this Agreement, all "grant shares" issued to employees of the
Companies under the Amended and Restated ProAssurance Corporation Stock
Ownership Plan (the "Stock Ownership Plan") shall automatically vest and shall
be transferred to participating employees' respective "Participant Accounts" (as
defined in the Stock Ownership Plan), and the vesting of such grant shares shall
occur without cost to the Companies or the Buyer.
Section 4.22. Release of Holdings from Sales Representative Agreements. At
the Closing, the Buyer shall assume all obligations of Holdings arising on or
after the Closing Date under each Sales Representative Agreement, in effect as
of the Closing Date, among MEEMIC Services, Holdings and each MEEMIC Services
sales representative (the "Sales Representative Agreements"). In addition,
following the Closing, the Buyer and MEEMIC Services shall use commercially
reasonable efforts to have Holdings formally released from any obligations under
the Sales Representative Agreements and shall endeavor to obtain such releases
prior to the first anniversary of the Closing Date. Notwithstanding the
foregoing, if the Buyer and MEEMIC Services have not had Holdings formally
released from any such obligations, at any time after the second anniversary of
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the Closing Date, Holdings shall have the right, to the extent permitted under
applicable law, to prospectively revoke any warranty made by it under any or all
of the Sales Representative Agreements without recourse from the Companies or
the Buyer.
ARTICLE V
TAX MATTERS
Section 5.1. Tax Cooperation And Exchange of Information.
(a) Preparation and Filing of Tax Returns/Tax Return Review.
(i) The Parent shall be responsible for filing Tax Returns on behalf
of the Companies for tax periods through and including the Closing Date. In
the case of the federal income Tax Return, such Tax Return shall include
all items of income, gain, loss, deduction and credit attributable to
either Company for the period covering the beginning of the Parent's
current fiscal year through and including the Closing Date. In making such
filing, the Parent shall not make a ratable allocation election under
Treas. Reg. ss.1.1502-76(b)(2)(ii), but rather will make such filing based
on the actual items of income, gain, loss, deduction and credit during the
applicable period covered by such filing. However, the Parent will not file
or cause the filing of such returns without the prior review by the Buyer
of each separate return or report where separate returns or reports are
filed or of separate pro forma information of the Companies where
consolidated or combined returns or reports are filed. Tax Returns of the
Companies not yet filed for any Tax Period that begins before the Closing
Date shall be prepared in a manner consistent with past practices employed
with respect to the Companies, and neither the Parent nor Holdings shall
make any election in respect of such a Tax Return without the prior written
consent of the Buyer.
(ii) The Buyer or the Companies shall be responsible for filing all
Tax Returns on behalf of the Companies for all tax periods commencing after
the Closing Date. In making such filing for the taxable year commencing
immediately after the Closing Date, no ratable allocation election shall be
made under Treas. Reg. ss.1.1502-76(b)(2)(ii).
(b) Notification of Tax Proceedings. Between the date hereof and the
Closing Date, to the extent either Company, Holdings or the Parent has knowledge
of the beginning or scheduling of any Tax audit, the assessment of any Tax, the
issuance of any notice of Tax due or any bill for collection of any Tax due for
Taxes, or the beginning or scheduling of any other administrative or judicial
proceeding with respect to the determination, assessment or collection of any
Tax of either Company or otherwise with respect to the Business or the
Companies, the Companies, Holdings or the Parent will provide prompt notice in
writing to the Buyer of such matter, setting forth information describing any
asserted Tax liability in reasonable detail and including copies of any notice
or other documentation received from the applicable Tax authority with respect
to such matter.
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(c) Tax Record Retention. The Companies (or their auditors or accountants
on its behalf) will retain all books, records, Tax Returns, schedules, work
papers, document and all material papers or relevant items of information
relating to the Federal, state, local and any other tax liabilities of the
Companies for any Tax Period ending on or before the Closing Date for the full
period of the applicable statute of limitations, including any extensions
thereof.
(d) Tax Return Amendment(s)/Filing of Elections. Except to the extent
required by law, without the prior written consent of the Buyer, none of the
Companies, Holdings nor the Parent will take or cause to be taken any of the
following actions, directly or indirectly which will or may affect either
Company or the Buyer for any period ending after the Closing Date:
(i) filing or amending any Tax Return;
(ii) filing any Tax election;
(iii) executing any waiver of restrictions on assessment or collection
of any Tax; or
(iv) entering into or amending any agreement or settlement with any
Tax Authority.
(e) Refund Claims. If the Buyer agrees to pay the reasonable costs
incurred by Holdings and/or the Parent, Holdings and/or the Parent will, upon
request, file any claim for refund or credit of any Tax on behalf of the Buyer
or either Company arising from the carryback of any deduction or credit of the
Buyer or either Company to any tax period ending on or before the Closing Date.
(f) Cooperation Agreement.
(i) The Parent, Holdings, the Companies and the Buyer will cooperate
fully with each other and each other's agents, including legal counsel and
public accounting firms, in connection with Tax matters relating to the
Companies, including without limitation:
(A) preparing and filing Tax Returns and reports with respect to
the Companies for any period, including but not limited to
Holdings' preparation of a Tax Return work paper package for
the Tax Periods ending on or including the Closing Date;
(B) determining the liability and amount of any Taxes due or the
right to and amount of any refund of Taxes;
(C) examination of Tax Returns;
(D) any administrative or judicial proceeding in respect of
Taxes assessed or proposed to be assessed.
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(ii) Such cooperation will include each party making all information
and documents in its possession relating to the Companies available to the
other party.
(iii) Each of the parties will also make available to the other party,
as reasonably requested and available, personnel (including officers,
directors, employees and agents) responsible for preparing, maintaining,
and interpreting information and documents relevant to Taxes, and personnel
reasonably required as witnesses or for purposes of providing information
or documents in connection with any administrative or judicial proceedings
relating to Taxes. Each party will pay only for reasonable costs incurred
by it in complying with this subsection.
(iv) No party is required to provide the other with any confidential
or proprietary information of either Company, the Buyer, Holdings, the
Parent or any of their respective affiliates, as the case may be, after the
Closing Date, except to the extent required for the filing of Tax Returns
and resolution or investigation of tax controversies that relate to
Pre-Effective Periods.
(g) Tax Controversies.
(i) Notice.
(A) If any Tax Authority informs Holdings or the Parent, or
Holdings or the Parent otherwise becomes aware, of any
notice of proposed audit, claim, assessment or other dispute
concerning the amount of Taxes with respect to which either
Company or the Buyer may incur liability hereunder (except
to the extent such liability is for Taxes of a member of the
Parent's affiliated group, other than the Companies, that
could only be imposed on either Company under Treasury
Regulation Section 1.1502-6 or any similar provision of any
applicable Tax Law), Holdings or the Parent, as applicable,
will promptly notify the Buyer in writing of such matter.
Similarly, if any Tax Authority informs the Buyer or either
Company, or the Buyer or either Company otherwise becomes
aware of, any notice of proposed audit, claim, assessment or
other dispute concerning the amount of Taxes with respect to
which Holdings or Parent may incur liability hereunder, the
Buyer will promptly inform Holdings and the Parent in
writing of such matter.
(B) Such notice will contain factual information (to the extent
known) describing any asserted Tax liability in reasonable
detail and will be accompanied by copies of any notice or
other documents received from any Tax Authority with respect
to such matter.
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(C) If an Indemnified Party (as defined below) has knowledge of
an asserted Tax liability with respect to a matter for which
it is to be indemnified under Article IX, and such party
fails to provide the Indemnifying Party (as defined below)
prompt notice of such asserted Tax liability, then
(1) if the Indemnifying Party is precluded from contesting
the asserted Tax liability in any forum as a result of
the failure to give prompt notice, the Indemnifying
Party will have no obligation to indemnify the
Indemnified Party for Taxes arising out of such
asserted Tax liability, and
(2) if the Indemnifying Party is not precluded from
contesting the asserted Tax liability in any forum, but
such failure to provide prompt notice results in a
monetary detriment to the Indemnifying Party, then any
amount which the Indemnifying Party is otherwise
required to pay the Indemnified Party pursuant to this
Agreement will be reduced by the amount of such
detriment.
(ii) Control Rights. The party that is required to file a return
pursuant to this Section will control any audits, disputes, administrative,
judicial or other proceedings related to Taxes with respect to which either
party may incur liability hereunder. Subject to the preceding sentence, if
an adverse determination may result in each party having responsibility for
any amount of Taxes under this Article, each party is entitled to fully
participate in that portion of the proceedings relating to the Taxes with
respect to which it may incur liability hereunder. For purposes of this
Section, the term "participation" will include:
(A) participation in conferences, meetings or proceedings with
any Tax Authority, the subject matter of which includes an
item for which such party may have liability hereunder;
(B) participation in appearances before any court or tribunal,
the subject of which includes an item for which a party may
have liability hereunder; and
(C) with respect to the matters described in the preceding
clauses (i) and (ii), participation in the submission and
determination of the content of the documentation, protests,
memorandum of fact and law, briefs, and the conduct of oral
arguments and presentations.
(iii) Consent to Settlement. Neither Holdings nor the Parent will
agree to settle any Tax liability or compromise any claim in respect to
Taxes, which settlement or compromise may affect the liability for Taxes
44
hereunder of either Company or the Buyer, without the Buyer's prior written
consent (which consent will not be unreasonably withheld or delayed).
Similarly, neither the Buyer nor either Company will agree to settle any
Tax liability or compromise any claim in respect to Taxes, which settlement
or compromise may affect the liability for Taxes hereunder of Holdings or
the Parent, without the consent of the Parent (which consent will not be
unreasonably withheld or delayed).
(iv) Expenses. The Buyer, Holdings and the Parent will bear their own
expenses incurred in connection with audits and other administrative
judicial proceedings relating to Taxes for which such party and its
affiliates are liable under this Article.
(h) The Companies shall terminate their participation in the Consolidated
Tax Allocation Agreement dated September 1, 2005 between the Parent and its
subsidiaries (the "Tax Allocation Agreement") and any other tax sharing
agreement between the Companies and the Parent as of the Closing Date, and after
the Closing Date, the Companies shall not be bound thereby or have any liability
thereunder. Notwithstanding the foregoing, within a reasonable time after the
Closing Date (but not later than the date for filing the tax return), the
Companies and the Parent, in accordance with Section 5.1(f) hereof, shall make a
final determination of the amounts that would be due under the Tax Allocation
Agreement (the "Final Tax Allocation Amount") for all Pre-Effective Periods for
which returns have not been filed, calculated on a basis consistent with past
practices, provided that the Final Tax Allocation Amount shall not include any
amount in respect of any adjustment to Taxes as a result of an amended return,
an audit or otherwise. The Final Tax Allocation Amount shall be determined as if
no Section 338(h)(10) election had been made with respect to the Companies. The
Final Tax Allocation Amount shall be payable within thirty (30) days after such
Allocation is determined by the Companies and the Parent as provided herein.
Section 5.2. Section 338(h)(10) Election.
(a) At the request of the Buyer, Holdings and the Parent shall make a
joint election with the Buyer under Section 338(h)(10) of the Code and under any
comparable or equivalent provisions of state or local law with respect to the
purchase of the Shares of either Company or both Companies by the Buyer (an
"Election"). If an Election is made, Holdings, Parent and the Buyer shall
report, in connection with the determination of Taxes, the transactions
contemplated by this Agreement in a manner consistent with the Election,
including the reasonable determination of the fair market value of the assets of
the Companies and the allocation of the deemed purchase price among the assets
of the Companies under the provisions of Section 338(h)(10) of the Code and the
regulations promulgated thereunder.
(b) If an Election is made, the Buyer shall be responsible for the
preparation of all forms and documents required in connection with the Election.
In connection with the Election, no later than 60 Business Days prior to the
required due date thereof, the Buyer shall provide Holdings with copies of (i) a
properly executed Form 8023 (or any successor form), (ii) all attachments
required to be filed therewith pursuant to applicable state or local elections
being made pursuant to the Election. Holdings and Parent shall execute and
deliver to the Buyer within forty-five (45) days of the required due date
therefor, such documents or forms as are required by any Tax laws to properly
45
complete the Election provided that all information required to be furnished to
the Internal Revenue Service pursuant to the Election complies with the
requirements of Section 338(h)(10) of the Code and the said Treasury Regulations
promulgated thereunder. Holdings, the Parent and the Buyer shall cooperate fully
with each other and make available to each other such Tax data and other
information as may be reasonably required by Holdings and the Parent or the
Buyer in order to timely file the Election and any other required statements or
schedules.
(c) Neither Holdings nor the Parent shall take any action which is
inconsistent with the requirements for filing an Election under the Code and the
applicable regulations.
Section 5.3. Miscellaneous.
The Parent and Holdings, on the one hand, and the Buyer, on the other,
agree to treat all payments made by either of them to or for the benefit of the
other under this Agreement as adjustments to the Purchase Price or as capital
contributions for Tax purposes and that such treatment shall govern for purposes
hereof except to the extent that the Applicable Tax Law of a particular
jurisdiction provides otherwise.
Section 5.4. Transfer Taxes.
All transfer Taxes arising in connection with the transfer of the Shares
shall be borne equally by Holdings and the Buyer.
ARTICLE VI
CONDITIONS TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the following conditions, except as the Buyer
may waive the same in writing.
Section 6.1. Performance. The Companies, Holdings and the Parent shall have
performed and complied in all material respects with all agreements and
covenants required by this Agreement or any Transaction Agreement to be
performed or satisfied by them on or prior to the Closing Date.
Section 6.2. Representations and Warranties. The representations and
warranties of the Companies, Holdings and the Parent contained in this Agreement
shall be true and correct on and as of the Closing Date as if made on and as of
such date (except to the extent that any such representation or warranty has by
its terms been made as of a specific date in which case such representation and
warranty shall have been true and correct as of such specific date); provided,
however, that if the failure of any such representations and warranties to be
true and correct on and as of the Closing Date, individually or in the
aggregate, has not resulted or reasonably could not be expected to result in a
Material Adverse Effect on the Companies, taken as a whole, disregarding for
these purposes any qualification or exception for, or reference to, materiality
in any such representation or warranty, the foregoing condition shall be deemed
to have been fulfilled. For purposes of this Agreement, "Material Adverse
Effect" means any circumstance, change in or effect on any Person that,
individually or in the aggregate with any other circumstance, changes in or
46
effects on, such Person, is, or could reasonably be expected to be, materially
adverse to the assets, business, operation, condition (financial or otherwise),
net worth, properties, liabilities, results of operations or future prospects of
the Companies or the Business; provided, however, none of the following, to the
extent arising after the date of this Agreement, shall constitute a Material
Adverse Effect: (i) any circumstance, change or effect affecting generally
companies operating in the personal lines insurance industry in the same general
manner and to the same general extent; or (ii) any circumstance, change or
effect affecting generally the United States or world economy.
Section 6.3. Material Adverse Change. There shall have been no material
adverse change in the condition (financial or otherwise), business, net worth,
operations, assets, properties, liabilities, results of operations or future
prospects of the Companies or the Business, taken as a whole, and there shall
not have been any occurrence, circumstance or combination thereof (whether
arising heretofore or hereafter), including litigation pending or threatened,
which might reasonably result in any such material adverse change before or
after the Closing Date; provided, however, none of the following, to the extent
arising after the date of this Agreement, shall constitute a material adverse
change for purposes of this Section 6.3: (i) any circumstance, change or effect
affecting generally companies operating in the insurance industry in the same
general manner and to the same general extent; or (ii) any circumstance, change
or effect affecting generally the United States or world economy. Without
limiting the generality of the foregoing, a PIP Claim in the amount of
$3,000,000 (after factoring all of the associated tax impacts based on a
marginal tax rate of 35%) or more shall constitute a material adverse change for
purposes of this Section 6.3.
Section 6.4. Legal Opinion. Burr & Forman LLP, as counsel to the Companies,
Holdings and the Parent, shall, immediately prior to the Closing, have delivered
to the Buyer its legal opinion, dated the Closing Date and addressed to the
Buyer, in substantially the form of Exhibit 6.4.
Section 6.5. Consents. On or prior to the Closing Date, each Company shall
have obtained all permits, authorizations, consents and approvals listed on
Schedule 6.5 attached hereto, in form and substance satisfactory to the Buyer
and the Buyer shall have received evidence satisfactory to it of the receipt of
such permits, authorizations, consents and approvals.
Section 6.6. Termination of Related Party Agreements. The Companies'
participation under all Related Party Agreements shall have been terminated.
Section 6.7. General Release. At the Closing, Holdings and the Parent shall
have executed and delivered the General Release.
Section 6.8. Resignations. Each director of each Company shall have
executed and delivered, in form and substance satisfactory to the Buyer, an
unconditional resignation of such director's directorship, with such
resignations to be effective as of the Closing Date.
Section 6.9. No Litigation. Immediately prior to the Closing Date, there
shall (a) have been no order, decree or ruling issued or any other action taken
by any court of competent jurisdiction or other governmental authority, which
has become final and nonappealable, restraining, enjoining or otherwise
47
prohibiting the transactions contemplated under this Agreement; (b) be no
litigation or proceeding pending against Holdings, either Company, the Parent or
the Buyer, which if decided adversely to such party would materially and
adversely affect the transactions contemplated by this Agreement. Immediately
prior to the Closing Date, there shall be no governmental investigation or
inquiry pending or threatened which might lead to or result in any litigation or
proceeding of the nature referred to in the foregoing sentence.
Section 6.10. Governmental Approvals. Each of the Companies, Holdings, the
Parent and the Buyer, and any other person (as defined in the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended and the rules and regulations
thereunder (the "HSR Act")) required in connection with the transactions
contemplated by this Agreement to file a Notification and Report Form for
Certain Mergers and Acquisitions with the Department of Justice and the FTC
pursuant to Title II of the HSR Act shall have made such filing and the
applicable waiting period with respect to each such filing (including any
extension thereof by reason of a request for additional information) shall have
expired or been terminated. In addition, the Buyer shall have prepared and filed
with all necessary governmental authorities a Notice on Form A and related
documents, and such applicable governmental entities shall have issued their
approval with respect thereto.
Section 6.11. Environmental Audit.
The results of any environmental audit conducted pursuant to Section 4.16
shall not have disclosed any past or present condition, process or practice with
respect to any of the Real Property which is not in compliance with all
applicable Environmental Laws or which otherwise requires remediation under any
Environmental Laws.
Section 6.12. Foundation Insurance Coverage.
Prior to the Closing, the Foundation shall be added as an additional
insured under the errors and omissions insurance coverage currently maintained
by the Companies.
Section 6.13. Approval of Permitted Dividend.
That portion of the Permitted Dividend made by MEEMIC Insurance shall have
received the prior approval of the Michigan Office of Financial and Insurance
Services.
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Section 6.14. Closing Certificates. The Companies, Holdings and the Parent
shall have furnished to the Buyer such certificates to evidence its and their
compliance with the conditions set forth in this Article as may be reasonably
requested by the Buyer.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANIES,
HOLDINGS AND THE PARENT
The obligations of the Companies, Holdings and the Parent to consummate the
transactions contemplated by this Agreement shall be subject to the following
conditions, except as the Companies, Holdings and the Parent may waive the same
in writing.
Section 7.1. Performance. The Buyer shall have performed and complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or satisfied by it on or prior to the Closing Date.
Section 7.2. Representations and Warranties. The representations and
warranties of the Buyer contained in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as if made on and as of such
date (except to the extent that any such representation or warranty has by its
terms been made as of a specific date in which case such representation and
warranty shall have been true and correct as of such specific date).
Section 7.3. Legal Opinion. Foley & Lardner LLP, as counsel to the Buyer,
shall, immediately prior to the Closing, have delivered to the Parent its legal
opinion, dated the Closing Date and addressed to Holdings and the Parent, in
substantially the form of Exhibit 7.3.
Section 7.4. No Litigation. Immediately prior to the Closing Date, there
shall (a) have been no order, decree or ruling issued or any other action taken
by any court of competent jurisdiction or other governmental authority, which
has become final and nonappealable, restraining, enjoining or otherwise
prohibiting the transactions contemplated under this Agreement; (b) be no
litigation or proceeding pending against Holdings, the Companies, the Parent or
the Buyer, which, if decided adversely to such party would materially and
adversely affect the transactions contemplated by this Agreement. Immediately
prior to the Closing Date, there shall be no governmental investigation or
inquiry pending or threatened which might lead to or result in any litigation or
proceeding of the nature referred to in the foregoing sentence.
Section 7.5. Governmental Approvals. Each of the Companies, Holdings, the
Parent and the Buyer, and any other person (as defined in the HSR Act) required
in connection with the transactions contemplated by this Agreement to file a
Notification and Report Form for Certain Mergers and Acquisitions with the
Department of Justice and the FTC pursuant to Title II of the HSR Act shall have
made such filing and the applicable waiting period with respect to each such
filing (including any extension thereof by reason of a request for additional
information) shall have expired or been terminated. In addition, each of the
Companies, Holdings, the Parent and the Buyer, as applicable, shall have
prepared and filed with all necessary governmental authorities a Notice on Form
A and related documents.
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Section 7.6. Closing Certificates. The Buyer shall have furnished to
Holdings such certificates to evidence compliance with the conditions set forth
in this Article as may be reasonably requested by Holdings or the Parent.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated as follows:
(a) By mutual written consent of the Companies, Holdings, the Parent and
the Buyer.
(b) By the Buyer (i) at any time if any representation and warranty of the
Companies, Holdings or the Parent contained in this Agreement was incorrect when
made or becomes incorrect at any time after the date hereof and prior to the
Closing Date and the failure of any such representations and warranties to be
true and correct, individually or in the aggregate, could reasonably be expected
to result in a Material Adverse Effect on the Companies, taken as a whole,
disregarding for these purposes any qualification or exception for, or reference
to, materiality in any such representation or warranty; (ii) at any time if the
Companies, Holdings or the Parent fails to comply in any material respect with
any provision of Article IV binding upon it or them and such failure is not
cured within thirty (30) days of receipt of notice thereof; or (iii) upon
written notice to Holdings given on or at any time after March 31, 2006 if all
the conditions precedent set forth in this Agreement to be performed by the
Companies, Holdings and the Parent have not been performed by that date.
(c) By Holdings and the Parent (i) at any time if any representation and
warranty of the Buyer contained in this Agreement was incorrect in any material
respect when made or becomes incorrect in any material respect at any time after
the date hereof and prior to the Closing Date; (ii) at any time if the Buyer
fails to comply in any material respect with any provision of Article IV binding
upon it; or (iii) upon written notice to the Buyer given on or at any time after
March 31, 2006 if all the conditions precedent set forth in this Agreement to be
performed by the Buyer have not been performed by that date.
Section 8.2. Effect of Termination. Termination of this Agreement pursuant
to Section 8.1(b) or 8.1(c) shall not in any way terminate, limit or restrict
the rights and remedies of any party hereto against any other party that has
violated, breached or failed to satisfy any of the representations, warranties,
covenants, agreements, conditions or other provisions of this Agreement prior to
termination hereof.
ARTICLE IX
INDEMNIFICATION
Section 9.1. Indemnifiable Claims.
(a) Notwithstanding the execution of this Agreement and regardless of any
investigation made at any time by or on behalf of the Buyer or any information
the Buyer or any of its representatives or affiliates may have, Holdings and the
Parent, jointly and severally, will and hereby do indemnify and hold the Buyer
and any affiliate of the Buyer and their respective officers and directors,
50
harmless from and against any and all liability, claim, loss, cost, damage or
expense whatsoever (including, without limitation, reasonable attorneys' fees
and expenses) resulting from or arising out of (i) any breach of any
representation or warranty of the Companies, Holdings or the Parent contained
herein or in any Transaction Agreement (without regard to any materiality or
Material Adverse Effect qualification contained therein); or (ii) any breach of
any covenant or obligation of the Companies, Holdings or the Parent contained
herein or in any Transaction Agreement.
(b) The Buyer will and hereby does indemnify and hold Holdings and the
Parent harmless from and against any and all liability, claim, loss, cost,
damage or expense whatsoever (including, without limitation, reasonable
attorneys' fees and expenses) resulting from or arising out of: (i) any breach
of any representation or warranty of the Buyer contained herein or in any
Transaction Agreement; (ii) any breach of any covenant or obligation of the
Buyer contained herein or in any Transaction Agreement, including, without
limitation, a breach of the covenant to assume the liability of Holdings under
the Sales Representative Agreements in accordance with Section 4.22 hereof; or
(iii) resulting or arising, directly or indirectly, in whole or in part, from or
out of the conduct of the Business or operations of the Companies after the
Closing Date.
Section 9.2. Notice of Claim. If any action is brought against any person
entitled to indemnification pursuant to Section 9.1 hereof (a "Claimant") in
respect of a claim under Section 9.1 hereof (an "Indemnifiable Claim"), the
Claimant shall notify promptly, if the Claimant is making a claim pursuant to
Section 9.1(a), the Parent, who is hereby authorized to act on behalf of
Holdings and the Parent as the representative of the Indemnifying Parties (the
"Representative") for purposes of this Section, or if the Claimant is making a
claim pursuant to Section 9.1(b), the Buyer (such notified party or parties, the
"Indemnifying Parties") in writing of the institution of such action (but the
failure so to notify shall not relieve the Indemnifying Parties from any
liability the Indemnifying Parties may have except to the extent such failure
materially prejudices the Indemnifying Party). Unless otherwise agreed to by the
Claimant, the Indemnifying Parties shall assume and direct the defense of such
action, including the employment of counsel, and all fees, costs and expenses
incurred in connection with defending or settling the Indemnifiable Claim shall
be borne solely by the Indemnifying Parties; provided, however, that such
counsel shall be satisfactory to the Claimant in the exercise of its reasonable
judgment and that the Indemnifying Parties shall not compromise any claim
without the prior written consent of the Claimant, which consent shall not be
unreasonably withheld. If the Indemnifying Parties shall undertake to compromise
or defend any such asserted liability, they shall promptly notify the Claimant
of their intention to do so, and the Claimant agrees to cooperate fully with the
Indemnifying Parties and their counsel in the compromise of, or defense against,
any such asserted liability. Notwithstanding an election by the Indemnifying
Parties to assume the defense of such action or proceeding, the Claimant shall
have the right to employ separate counsel and to participate in the defense of
such action or proceeding, and the Indemnifying Parties shall bear the
reasonable fees, costs and expenses of such separate counsel (and shall pay such
fees, costs and expenses at least quarterly), if (a) the use of counsel chosen
by the Indemnifying Parties to represent the Claimant would present such counsel
with a conflict of interest; (b) the defendants in, or targets of, any such
action or proceeding include both a Claimant and an Indemnifying Party, and the
Claimant shall have reasonably concluded that there may be legal defenses
available to it or to other Claimants which are different from or additional to
those available to the Indemnifying Parties (in which case the Indemnifying
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Parties shall not have the right to direct the defense of such action or
proceeding on behalf of the Claimant); or (c) the Representative shall authorize
the Claimant to employ separate counsel at the expense of the Indemnifying
Parties. All costs and expenses incurred in connection with a Claimant's
cooperation shall be borne by the Indemnifying Parties. In any event, the
Claimant shall have the right at its own expense to participate in the defense
of such asserted liability.
Section 9.3. Limitation of Indemnification. Except for any willful or
knowing breach or misrepresentation, as to which claims may be brought without
limitation as to time or amount:
(a) Time Limitation. No claim or action shall be brought under this
Article IX for breach of a representation or warranty contained in or made
pursuant to this Agreement by any Indemnifying Party after the lapse of two (2)
years following the Closing Date. Regardless of the foregoing, however, or any
other provision of this Agreement:
(i) There shall be no time limitation on claims or actions brought
for breach of any representation or warranty made by the Companies,
Holdings or the Parent in or pursuant to Sections 2.1, 2.4, 2.5 or 2.6, and
Holdings and the Parent hereby waive all applicable statutory limitation
periods with respect thereto.
(ii) There shall be no time limitation on claims or actions brought
for breach of any covenant or obligation of the Buyer pursuant to Section
4.22, and the Buyer hereby waives all applicable statutory limitation
periods with respect thereto.
(iii) Any claim or action brought for breach of any representation,
warranty or covenant made by the Companies, Holdings or the Parent in or
pursuant to Sections 2.18 or 2.23 or relating to the Fair Credit Reporting
Act may be brought at any time until sixty (60) days after the underlying
claim is barred by the applicable period of limitation under any laws
relating thereto.
(iv) Any claim or action relating to Taxes shall be subject to the
time limitation set forth in Section 9.5 below.
(v) If any act, omission, disclosure or failure to disclose shall
form the basis for a claim for breach of more than one representation or
warranty, and such claims have different periods of survival hereunder, the
termination of the survival period of one claim shall not affect a party's
right to make a claim based on the breach of representation or warranty
still surviving.
(b) Amount Limitation. A Claimant shall not be entitled to indemnification
hereunder with respect to claims unless the aggregate amount of all damages to
the Claimant resulting from such claims for which the Indemnifying Party would,
but for the provision of this Section 9.3, be liable to an Claimant exceeds
$400,000 (the "Basket Amount") in the aggregate, at which time all amounts of
such damages in excess of the Basket Amount may be recovered as provided in this
Article IX; provided, however, that the Basket Amount shall not be applicable to
any claims relating to intentional breaches by the Indemnifying Party, any
violation of the provisions of Section 4.11 or Section 4.22 or a claim by Buyer
for reimbursement under Section 4.17 relating to the Success Fee Letters. The
52
aggregate liability of Holdings and/or Parent to indemnify Buyer for breaches of
representations and warranties under Article II hereof shall not exceed an
amount equal to $400,000,000; provided, however, that any indemnified costs
arising from taxes shall be dealt with pursuant to Section 9.5 below.
Section 9.4. Right of Offset. Notwithstanding any other provision of this
Agreement or any Transaction Agreement, in the event an Indemnifying Party is
required to indemnify or make payments to any Claimant under any provision of
this Agreement or any Transaction Agreement, in addition to any other right
available to the Claimant hereunder, the Claimant shall be entitled to offset
the amount of such required indemnity or any claim from any and all amounts owed
by any Claimant, or any affiliate of a Claimant, to any Indemnifying Party,
hereunder or otherwise.
Section 9.5. Tax Indemnification.
(a) Scope of Tax Indemnity Provisions/Relationship of this Section to
General Provisions.
(i) In the case of any indemnity claim for Taxes, for a Pre-Effective
Period, the indemnity obligations of Holdings and the Parent, and the
rights of the Buyer with respect to indemnification, will be governed by
this Section and not by the general indemnity provisions of this Agreement.
(ii) Notwithstanding any other provision of this Agreement, the
indemnities provided for in this Section will survive until 60 days after
the expiration of the applicable statutes of limitation, including
extensions.
(iii) An entity entitled to indemnification for Taxes under this
Section shall also be entitled to indemnification for all fees and costs
(including professional fees and costs) associated with enforcing its
rights under this Section.
(b) Allocation of Liability for Taxes.
(i) General.
(A) Subject to Section 9.5(b)(ii), below:
(1) Holdings and the Parent, jointly and severally, will be
liable for, and will indemnify, defend and hold
harmless the Companies, the Buyer, and their respective
affiliates from and against, any and all Taxes imposed
on or due with respect to any of the Companies, their
assets, or their operations or activities for any
Pre-Effective Period. For purposes of the preceding
sentence, the liability of Holdings and the Parent will
include, without limitation:
53
1) any liability for Taxes arising from the
inclusion (or termination of the inclusion) of the
Companies in a consolidated, combined, unitary or
separate company Tax Return filed by Parent, either
Company or any of their respective tax affiliates,
including, without limitation, all liability for Taxes
of any other member of the Parent's affiliate group
pursuant to any provision of several liability,
including Treasury Regulation Section 1.1502-6 and any
corresponding provisions of Applicable Tax Law;
2) any liability for Taxes relating to the
demutualization, reorganization or other transactions
by which the business (including the Business),
operations, properties or stock of the Companies or
their respective affiliates were incorporated or
acquired by affiliates or former affiliates of Holdings
and the Companies;
3) any liability for Taxes arising out of any
Election made in accordance with Section 5.2 of this
Agreement; and
4) any liability for Taxes arising from the
disallowance or adjustment of deductions taken for
periods prior to the Closing Date (regardless of the
year in which such disallowance or adjustment occurs).
(2) The Companies and the Buyer will be liable for, and
will indemnify, defend and hold Holdings and the Parent
harmless from and against, any and all Taxes imposed on
or with respect to the Companies or their assets,
operations, or activities for any Post-Effective
Period.
(3) Notwithstanding anything to the contrary herein,
neither Holdings nor the Parent shall have any
indemnification obligation:
1) with respect to Taxes of the Companies to the
extent of the reserves for Taxes specifically
identified on Schedule 2.34;
54
2) with respect to any Final Tax Allocation Amount
paid by the Companies to Holdings or the Parent; or
3) with respect to Taxes shown on Returns due on
or after the date of this Agreement that include only
the Companies.
(ii) Method of Allocating Income and Deductions. In the case of any
Straddle Period, Tax items will be apportioned between Pre-Effective
Periods and Post-Effective Periods based on a closing of the books and
records of the relevant entity or entities as of the Closing Date, provided
that:
(A) any Tax item incurred by reason of the transaction occurring
on or before the Closing Date as contemplated by this
Agreement will be treated as occurring in a Pre-Closing Date
Period; and
(B) depreciation, amortization and depletion will be apportioned
on a daily pro rata basis.
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Section 9.6. Exclusive Remedy. Subject to the last sentence of this Section
9.6, from and after the Closing Date, except for a willing or knowing breach or
misrepresentation, the rights and remedies under this Article IX shall be deemed
to be exclusive of all other rights and remedies that would otherwise be
available to the parties hereto; that is, each party hereto expressly waives the
right, whether by contract or under law to the extent legally permissible to do
so, to seek damages from or against or otherwise assert claims against the other
party hereto or its assets or its successors or assigns other than pursuant to
this Article IX. No course of dealing by either party, or any delay or omission
of either party in exercising any rights or remedies under this Agreement shall
operate as a waiver of such right or remedy. Notwithstanding the foregoing, each
of the parties hereto, shall have the right to enforce their respective rights
hereunder by an action or actions for specific performance, injunction or
similar equitable remedies, including, without limitation, as contemplated in
Section 4.11.
ARTICLE X
MISCELLANEOUS
Section 10.1. Notices. Any notice or other communication required or which
may be given hereunder shall be in writing and either delivered personally to
the addressee by hand or by overnight courier, or mailed, certified or
registered mail, postage prepaid, and shall be deemed given when so delivered
personally, or if mailed, two days after the date of mailing as follows:
if to the Companies prior to the Closing or to Holdings or the Parent:
ProAssurance Corporation
100 Brookwood Place
Birmingham, AL 35209
Attention: Chairman of the Board
with a copy to:
Burr & Forman LLP
420 20th Street North, Suite 3100
Birmingham, AL 35203
Attention: Jack P. Stephenson, Jr., Esq.
if to the Buyer:
Motors Insurance Corporation
13736 Riverport Drive
Suite 700
Maryland Heights, MO 63043
Attention: Bernard J. Buselmeier, Vice President
and to:
GMAC Insurance Holdings, Inc.
500 West Fifth Street
Winston-Salem, NC 27152
Attention: Sheena Poe, General Counsel
56
Section 10.2. Entire Agreement. This Agreement and the Transaction
Agreements (including all disclosure schedules and exhibits hereto and thereto)
contains the entire agreement among the parties with respect to the transactions
contemplated hereby and supersedes all prior agreements, written or oral, with
respect thereto.
Section 10.3. Waivers and Amendments. This Agreement may be amended,
modified, superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder, preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
Section 10.4. Confidentiality. All information which is not public
knowledge disclosed heretofore or hereafter by any party to any other party
(including its attorneys, accountants or other representatives, but excluding
those employees of, and attorneys, accountants, financial advisors and other
representatives for, any said party who agree to be bound by the Confidentiality
Agreement) in connection with this Agreement (including the existence of this
Agreement and the terms thereof) shall be kept confidential by such other party,
and shall not be used by such other party otherwise than for use as herein
contemplated, except to the extent (a) it is or hereafter becomes public
knowledge or becomes lawfully obtainable from other sources, including a third
party who is under no obligation of confidentiality to the party disclosing such
information or to whom information was released without restriction, or (b) such
other party is compelled to disclose such information by judicial or
administrative process or, in the opinion of its counsel, by other requirements
of law, or (c) such duty as to confidentiality and non-use is waived by such
disclosing party.
Section 10.5. Expenses. Except as otherwise expressly provided herein, each
party shall bear the respective legal, accounting and other costs and expenses
of any nature, relating to or in connection with the consummation of the
transactions contemplated by this Agreement, incurred by each of them, whether
or not this Agreement is consummated or terminated; provided, however, that the
Buyer and Holdings shall each bear one-half of any filing fees with respect to
any filings required under the HSR Act in connection with the consummation of
the transactions contemplated by this Agreement.
Section 10.6. Further Actions. At any time and from time to time, each
party agrees, without further consideration, to take such actions and to execute
and deliver such documents as may be reasonably necessary to effectuate the
purposes of this Agreement.
Section 10.7. Survival. Except as otherwise provided herein, the covenants,
agreements, representations, warranties and indemnifications contained in or
made pursuant to this Agreement shall survive the Closing Date, irrespective of
any review, examination or investigation made by or on behalf of any party.
Section 10.8. Governing Law; Venue. This Agreement shall be governed and
construed in accordance with the internal laws of Michigan. Each party hereby
consents and agrees that the United States District Court or any other court
57
having situs within Detroit, Michigan shall have exclusive jurisdiction to hear
and determine any claims or disputes among the parties pertaining to, arising
out of, or relating to this Agreement or the transactions contemplated hereby.
Each party waives any objection based upon lack of personal jurisdiction,
improper venue or forum nonconveniens.
Section 10.9. Assignment. Subject to the provisions hereof, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. This Agreement shall not be assignable prior
to Closing, except that the Buyer may assign its respective rights and
obligations to any affiliate of the Buyer on the condition that Buyer shall
continue to be bound by this agreement. No assignment of this Agreement shall
relieve the parties of their respective obligations hereunder. Any assignment
shall be subject to all applicable governmental approvals.
Section 10.10. Counterparts.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one and
the same instrument.
Section 10.11. The Company Disclosure Schedule and Exhibits. The Company
Disclosure Schedule and the Exhibits hereto are a part of this Agreement as if
set forth in full herein. Information set forth in the Company Disclosure
Schedule specifically refers to the article and section of this Agreement to
which such information is responsive and such information shall not be deemed to
have been disclosed with respect to any other article or section of this
Agreement unless a specific cross-reference is made to such article or section
of this Agreement. The Company Disclosure Schedule shall not vary, change or
alter the language of the representations and warranties contained in this
Agreement.
Section 10.12. Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
Section 10.13. Knowledge. For purposes of this Agreement, "knowledge" as of
any date that a representation or warranty is given by either Company, Holdings
or the Parent shall mean the actual or constructive knowledge, after diligent
inquiry, of any director or executive officer of either Company, Holdings or the
Parent, and "knows" shall have a correlative meaning.
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IN WITNESS WHEREOF, the parties have executed this Stock Purchase Agreement
as of the date first above written.
MOTORS INSURANCE CORPORATION
By: /s/ Bernard J. Buselmeier
-------------------------
Title: Vice-President
---------------
MEEMIC INSURANCE SERVICES CORPORATION
By: /s/ Lynn M. Kalinowski
----------------------
Title: President
-----------
MEEMIC INSURANCE COMPANY
By: /s/ Lynn M. Kalinowski
----------------------
Title: President
-----------
MEEMIC HOLDINGS, INC.
By: /s/ Lynn M. Kalinowski
-----------------------
Title: President
-----------
PROASSURANCE CORPORATION
By: /s/ Edward L. Rand, Jr.
-----------------------
Title: Chief Financial Officer
-------------------------