EXHIBIT 10.5
PURCHASE AGREEMENT
between
MILLERS AMERICAN GROUP, INC.,
a Texas corporation
and
ACCEPTANCE INSURANCE COMPANY,
a Nebraska insurance company
regarding
PHOENIX INDEMNITY INSURANCE COMPANY,
an Arizona insurance company
May 10, 1999
<PAGE>
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is made and entered into this
10th day of May, 1999, by and between Millers American Group, Inc., a Texas
corporation (the "Purchaser"), Acceptance Insurance Company, a Nebraska
insurance company (the "Seller") and Phoenix Indemnity Insurance Company, an
Arizona insurance company (the "Company").
PRELIMINARY STATEMENTS
A. Seller is a wholly owned subsidiary of Acceptance Insurance Holdings
Inc., a Nebraska corporation ("AIH") which in turn is a wholly-owned subsidiary
of Acceptance Insurance Companies Inc., a Delaware corporation ("AIC").
B. The Seller owns all of the issued and outstanding shares of capital
stock of the Company (the "Shares").
C. The Company, Seller, Acceptance Indemnity Insurance Company, Redland
Insurance Company ("Redland") and Acceptance Casualty Insurance Company
("Acceptance Casualty") (collectively, the "Pooling Participants") are parties
to that certain Reinsurance Pooling Agreement dated January 1, 1993, as amended
by Addendum Number One, Addendum Number Two, Addendum Number Three and Addendum
Number Four thereto (the "Pooling Agreement").
D. Seller is the lead participant under the Pooling Agreement and reports
its net premiums and losses (after reinsurance is transacted among third parties
and other affiliates) as assumed business from each of the other Pooling
Participants. The pooled business is in turn retroceded from Seller to other
Pooling Participants pursuant to the Pooling Agreement.
E. The Pooling Participants issue or reinsure insurance policies classified
as Private Passenger Non-Standard Automobile Liability (including No-Fault,
Uninsured and Underinsured Motorists, Medical Payments Coverage, and Guest
Passenger Liability as applicable) and Automobile Physical Damage coverage
(collectively, all such insurance coverage is referred to herein as the
"Nonstandard Business").
F. Redland writes Nonstandard Business in the State of California which is
reinsured under 80% Quota Share Reinsurance Agreements with unrelated third
party reinsurers (the "California Business").
G. Acceptance Casualty is a reinsurer under a Quota Share Reinsurance
Agreement of Nonstandard Business produced by Arrowhead General Agency (or its
affiliates) in the State of Texas (the "Texas Business").
H. The parties desire to enter into this Agreement with each other for the
consideration and pursuant to the terms and conditions hereinafter specified,
under which (i) the Seller will sell the Shares to the Purchaser, and the
Purchaser will purchase the Shares from the Seller, (ii) the Company will write
or reinsure all of the Nonstandard Business other than the California Business,
(iii) The Millers Insurance Company ("Millers") will reinsure 100% of the
California Business (a portion of which may be ceded by Millers to other
reinsurers) and (iv) the Company or Millers will reinsure the Texas Business
pursuant to a retrocession agreement.
STATEMENT OF AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants hereinafter contained, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE 1.
PURCHASE AND SALE
1.1 Sale of Shares. Subject to the terms and conditions contained in this
Agreement, the Seller agrees to sell, transfer and deliver to the Purchaser, and
the Purchaser agrees to purchase from the Seller, at Closing (as such term is
defined in Section 1.4 hereof), all of the Shares outstanding at the Closing for
the consideration specified herein.
1.2 Transfer of Nonstandard Business. Subject to the terms and conditions
contained in this Agreement, the Seller agrees to transfer to the Company or
Millers, as the case may be, at Closing, and cause the applicable Pooling
Participant to transfer to the Company at Closing, the Nonstandard Business for
the consideration specified herein.
1.3 Purchase Price. The Preliminary Purchase Price payable pursuant to this
Agreement for the Shares to be transferred to Purchaser after giving effect to
the transfer of the Nonstandard Business (other than the California Business) to
the Company (and the California Business to Millers) shall be the cash amount of
Twenty-five Million Dollars ($25,000,000) subject to any adjustment as provided
in Section 10.3 hereof. At the Closing, Purchaser shall deliver to the Seller,
by wire transfer, pursuant to wiring instructions provided by the Seller at
least five business days prior to the Closing Date, immediately available funds
in an amount equal to the Preliminary Purchase Price. The Final Purchase Price
shall be determined post-closing as provided in Section 10.3 hereof.
1.4 Closing. The closing for the transactions contemplated by this
Agreement shall take place at the offices of Purchaser, 300 Burnett Street, Fort
Worth, Texas 76102-2799 at 10:00 a.m. local time on the last calendar day of the
month in which the last regulatory consent or approval is received (the
"Closing") or at such other place, date or time as the parties hereto mutually
agree, but in no event shall the date be later than June 30, 1999; provided,
however, the Seller or the Purchaser may extend the Closing Date pursuant to
this Section 1.4 to an effective date of July 31, 1999, provided the extension
is necessary to obtain regulatory consent or approval and the extending party is
not in breach or default under the terms of this Agreement. If the last calendar
day of the month falls on a day that is a legal holiday or a day on which banks
otherwise are closed for business, then the Closing will take place on the next
following business day but will be effective as of the last day of the prior
month. The date of the Closing is referred to as the "Closing Date."
1.5 Constituent Transactions. Subject to the terms, conditions, provisions
and conditions of this Agreement:
(a) At the Closing, the Seller shall deliver to the Purchaser, free
and clear of any lien, pledge, security interest, encumbrance, restriction
or adverse claim ("Lien"), certificates representing all of the Shares then
outstanding (which shall constitute all of the issued and outstanding
shares of capital stock of the Company) duly endorsed in blank for transfer
or accompanied by stock powers or other instruments of transfer duly
executed in blank;
(b) At the Closing, the Purchaser shall deliver to the Seller the
Preliminary Purchase Price to be paid at Closing to Seller and in cash by
federal wire transfer of immediately available funds to the Seller's bank
accounts, pursuant to the terms of Section 1.3 hereof;
(c) At the Closing, Millers and Redland shall enter into a Portfolio
Reinsurance Agreement ( the"Millers Agreement") in the form of Exhibit A
hereto pursuant to which all California Business shall be transferred to
Millers, and Redland shall agree to continue to write California Business
for expiring insurance policies and new insurance policies with program and
rate filing characteristics similar to those of the expiring policies
within the California Business to be reinsured by Millers in accordance
with a 100% Quota Share Reinsurance Agreement substantially in the form of
an Additional State Agreement (as defined below) except that no ceding
commission or other compensation shall be paid to Redland under such
agreement.
(d) At the Closing, the Company and each Pooling Participant (also
referred to herein as a "Fronting Company") shall enter into an addendum to
the applicable 100% Quota Share Reinsurance Agreement (as amended by such
addendum, a "Continuing State Agreement") in the form of Exhibits B-1 and
B- 2 hereto pursuant to which such Fronting Company shall continue to write
Private Passenger Nonstandard Automobile Liability (including No-Fault,
Uninsured and Underinsured Motorists, Medical Payments Coverage, and Guest
Passenger Liability as applicable) and Automobile Physical Damage coverage
for expiring insurance policies and new insurance policies with program and
rate filing characteristics similar to those of the expiring policies (the
"Continuing Nonstandard Business" ) to be reinsured by the Company in
accordance with the terms of each Continuing State Agreement;
(e) At the Closing, the Company and the applicable Fronting Company
shall enter into an additional 100% Quota Share Reinsurance Agreement (an
"Additional State Agreement") in the form of Exhibit C hereto pursuant to
which such Fronting Company shall write Nonstandard Business (the
"Additional Nonstandard Business") to be reinsured by the Company in
additional states for up to two years from the Closing Date in an aggregate
annual amount of up to $20 million in accordance with the terms of the
Additional State Agreement;
(f) At the Closing, the Company and Seller shall enter into Addendum
Number 2 to a 100% Quota Share Agreement of Reinsurance dated October 10,
1994, as amended by Addendum Number 1 thereto dated August 28, 1997 (as
amended by Addendum Number 2, the "Assumption Agreement") in the form of
Exhibit D hereto pursuant to which Seller shall assume all liability of the
Company under any insurance policies or surety bonds relating to any type
of insurance business or surety bonds written by the Company other than the
Nonstandard Business;
(g) At the Closing, Acceptance Casualty and the Company (or Millers)
shall enter into a Retrocession Agreement in form and substance
satisfactory to Purchaser and Seller (the "Retrocession Agreement") with
respect to all Texas Business.
(h) At the Closing, AIH, AIC, Seller and each Fronting Company shall
enter into a Noncompetition Agreement (the "Noncompetition Agreement") in
the form of Exhibit E hereto pursuant to which each such party agrees to
certain noncompete, nondisclosure and nonsolicitation covenants as
described in, and in accordance with the provisions of the Noncompetition
Agreement;
(i) At the Closing, AIH, AIC, Seller, each Fronting Company and each
director of the Company shall execute and deliver to the Company a Release
(the "Release") in the form of Exhibit F hereto pursuant to which each such
party agrees to release all claims (other than certain identified claims)
against the Company in accordance with the terms of such Release and the
Seller shall use its reasonable efforts to cause each officer of the
Company listed on Schedule 3.22 to execute and deliver to the Company at
Closing a Release; and
(j) At the Closing, each party hereto shall deliver, or cause to be
delivered, all other required agreements, resignations, officer
certificates, legal opinions and other documents and instruments required
to be delivered by such party pursuant to this Agreement.
1.6 Transaction Documents; Order of Closings. This Agreement, the Millers
Agreement, the Assumption Agreement, each Continuing State Agreement, each
Additional State Agreement, the Retrocession Agreement, the Noncompetition
Agreement, and each Release are collectively referred to herein as the
"Transaction Documents." For the purposes of this Agreement, all transactions
and agreements contemplated hereby between the Company and any Pooling
Participant shall be effective immediately prior to the purchase of the Shares
by Purchaser.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants the following:
2.1 Organization and Qualification. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas and has the requisite corporate power to carry on its business as now
conducted.
2.2 Authority Relative to Agreement. Purchaser has the requisite corporate
power and authority to enter into this Agreement and the other Transaction
documents to which it is a party and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the other
transaction documents by Purchaser and the consummation by Purchaser of the
transactions contemplated hereby and thereby have been duly authorized by the
Board of Directors of Purchaser as of the date of this Agreement, and no other
corporate proceedings on the part of Purchaser are necessary to authorize this
Agreement and the other Transaction Documents to which it is a party and the
transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Purchaser and constitutes a legal, valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with its
terms except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Each of the other Transaction Documents to which Purchaser is a party that is
required to be executed and delivered at Closing by Purchaser pursuant to this
Agreement will be duly executed and delivered at Closing and, assuming each
Transaction Document will at such time constitute a legal, valid and binding
obligation of the other parties thereto, will constitute a legal, valid and
binding obligation of Purchaser, enforceable against Purchaser in accordance
with its terms except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights generally from time to time
in effect and except that equitable remedies are subject to judicial discretion.
Other than in connection with or in compliance with the provisions of applicable
insurance laws, and the Hart-Scott-Rodino Antitrust Improvements Act of 1976
(the "HSR Act"), no notice to, filing with, or authorization, consent or
approval of, any public body or authority ("Governmental Authority") or other
person or entity ("Person") is necessary for the consummation by Purchaser of
the transactions contemplated by this Agreement except where failures to give
such notices, make such filings, or obtain authorizations, consents or approvals
would, in the aggregate, not have a Materially Adverse Effect (as hereinafter
defined). "Material Adverse Effect" as used in this Agreement means a material
adverse effect on the condition (financial or other), business or operations of
the referenced party or the transactions contemplated by this Agreement.
2.3 Financing. Purchaser has made adequate provision for the financing of
the Purchase Price.
2.4 Brokers. Purchaser represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with this Agreement based upon arrangements made by or
on behalf of Purchaser. If any broker or finder asserts a claim for a fee as a
result of such transactions, based upon a contract, written or oral, with
Purchaser, such claim shall be payable by Purchaser.
2.5 Effect of Agreement. Neither the execution and delivery of this
Agreement and the other Transaction Documents to which Purchaser is a party nor
the consummation of the transactions contemplated hereby and thereby will
conflict with, violate or result in a breach of any provision of the charter
documents or bylaws of Purchaser or any law, rule, regulation or ordinance
applicable to Purchaser.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
The Seller represents and warrants to Purchaser as follows in Section 3.1
through Section 3.28, inclusive:
3.1 Organization, Good Standing, Power, etc.
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nebraska, and has all
requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as now being conducted. The Company
is duly organized, validly existing and in good standing as an Arizona
property and casualty insurance company and has all requisite corporate
power and authority to own, operate and lease its properties and to carry
on its business as now being conducted. The Company is duly qualified as a
foreign insurance company to do business, and is in good standing, in each
jurisdiction where the character of its properties owned or leased or the
nature of its activities make such qualification necessary. Copies of the
Articles of Incorporation and bylaws of the Company heretofore delivered to
Purchaser by the Seller are true and complete as of the date hereof. Each
of such Articles of Incorporation and bylaws is in full-force and effect,
and the Company is not in violation or breach of any of the provisions of
its Articles of Incorporation or bylaws.
(b) Each of Seller and the Company has the requisite corporate and
other power and authority to enter into this Agreement and the other
Transaction Documents to which it is a party and to perform its obligations
hereunder and thereunder. The execution and delivery of this Agreement and
the other Transaction Documents by Seller and the Company and the
consummation by Seller and the Company of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors and
shareholders of Seller and the Company and no other corporate proceedings
on the part of Seller or the Company are necessary for the execution and
delivery of this Agreement by Seller and the Company and the consummation
by Seller and the Company of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Seller and the Company
and constitutes a legal, valid and binding obligation of Seller and the
Company, as the case may be, enforceable against Seller and the Company in
accordance with its terms except as enforcement thereof may be limited by
liquidation, conservatorship, bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditor's rights
generally from time to time in effect and except that equitable remedies
are subject to judicial discretion. Each of the other Transaction Documents
to which Seller and the Company is a party that is required to be executed
and delivered at Closing by Seller and the Company pursuant to this
Agreement will be duly executed and delivered at Closing and, assuming each
Transaction Document will at such time constitute a legal, valid and
binding obligation of the other parties thereto, will constitute a legal,
valid and binding obligation of Seller and the Company, as the case may be,
enforceable against Seller and the Company in accordance with its terms
except as enforcement thereof may be limited by liquidation,
conservatorship, bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditor's rights generally from
time to time in effect and except that equitable remedies are subject to
judicial discretion.
3.2 Authorized Capitalization of the Company. The authorized capital stock
of the Company consists solely of 500,000 shares of common stock, $6.00 par
value, of which 500,000 shares are validly issued and outstanding, fully paid
and non-assessable and held solely by Seller. There are no outstanding or
authorized subscriptions, options, warrants, calls, rights (including any
preemptive rights), commitments, or other agreements of any character whatsoever
which obligate or may obligate the Company to issue or sell any additional
shares of its capital stock or any securities convertible into or evidencing the
right to subscribe for any shares of its capital stock or securities convertible
into or exchangeable for such shares. There are no outstanding contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
outstanding shares of capital stock of, or other ownership interests in, the
Company or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity.
3.3 Subsidiaries. The Company does not own any direct or indirect interest
in any corporation or business activity and the Company is not a participant in
any partnership or any joint venture with any third party.
3.4 Effect of Agreement. The execution, delivery and performance by Seller
and the Company of this Agreement and the other Transaction Documents to which
it is a party and the consummation by Seller and the Company of the transactions
contemplated hereby and thereby will not require any notice to, filing with, or
the consent, approval or authorization of any Person or Governmental Authority,
except as set forth in Schedule 3.4 hereto (which consents or approvals will be
obtained on or before the Closing) and except where failures to give such
notices, make such filings or obtain authorizations, consents or approvals
would, in the aggregate, not have a Material Adverse Effect. Neither the
execution and delivery of this Agreement and the other Transaction Documents nor
the consummation of the transactions contemplated hereby and thereby will (i)
result in the acceleration or termination of, or the creation in any party of
the right to accelerate, terminate, modify or cancel, any indenture, contract,
lease, sublease, loan agreement, note or other obligation or liability to which
the Company or Seller is a party or is bound or to which any of their assets are
subject, (ii) conflict with, violate or result in a breach of any provision of
the charter documents or bylaws of the Company or Seller, (iii) conflict with or
violate any law, rule, regulation, ordinance, order, writ, injunction or decree
applicable to the Company or Seller or by which any of their properties or
assets are bound or affected or (iv) conflict with or result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or result in the creation of any lien, charge or
encumbrance on any of the properties or assets of the Company or Seller pursuant
to any of the terms, conditions or provisions of any indenture, contract, lease,
sublease, loan agreement, note, permit, license, franchise, agreement or other
instrument, obligation or liability to which the Company or Seller is a party or
by which the Company or Seller or any of their assets is bound or affected.
3.5 Financial Statements and Statutory Reserves.
(a) The Seller has heretofore delivered to the Purchaser complete and
correct copies of the Annual Statement of the Company, as filed with the
Arizona Department of Insurance, for the year ended December 31, 1998,
together with all exhibits and schedules thereto (the "Annual Statement").
The statutory financial statements of the Company contained in the Annual
Statements met the requirements of the insurance laws of the State of
Arizona in all material respects when so filed and have been prepared in
conformity with statutory accounting practices prescribed or permitted by
the Department of Insurance of the State of Arizona ("SAP").
(b) Seller has delivered to Purchaser audited financial statements of
the Company, prepared in conformity with SAP, as at December 31, 1998, and
for the year then ended, including, without limitation, a statement of
consolidated operations and retained earnings, balance sheet, statement of
changes in financial position, and all notes relating thereto (the "Audited
Financial Statements") which have been certified by Deloitte and Touche,
LLP, the independent public accountants of the Company.
(c) Seller has also delivered to Purchaser unaudited financial
statements of the Company, prepared in conformity with SAP, as of March 31,
1999, and for the three-months period then ended, consisting of a balance
sheet, statement of operations, and statement of cash flow certified by the
chief financial officer of the Company (the "Interim Financial
Statements"). The Interim Financial Statements shall include an interim
review of loss reserves as of the date of the Interim Financial Statements.
(d) The Audited Financial Statements and the Interim Financial
Statements (collectively, the "Financial Statements") (i) are in accordance
with the books and records of the Company, as the case may be, (ii) except
as set forth therein (including the notes thereto), have been prepared in
accordance with SAP, (including adequate provisions for reserves for all
loans), consistently applied throughout the periods involved; and (iii)
fairly represent both the financial condition of the Company and the
results of operations as at the dates and for the periods therein
specified.
(e) None of the Financial Statements (i) contain or when delivered
will contain, as the case may be, any item of extraordinary or
non-recurring income or expense (except as specified therein); (ii) reflect
or when delivered will reflect, as the case may be, uncollectible accounts
receivable without a reserve fairly stated for uncollectible amounts; and
(iii) reflect or when delivered will reflect, as the case may be, any
write- off or reevaluation of assets (except as specified therein). There
are no liabilities, indebtedness or obligations of the kind required by
generally accepted accounting principles to be reflected, noted or reserved
against on the balance sheets of the Company as of December 31, 1998 and
March 31, 1999, except those which have been reflected, noted or reserved
against in the Financial Statements. All loan reserves established by the
Company are adequate. The Company is not directly or indirectly liable to
or obligated to provide funds in respect of or to guarantee or assume any
obligation of any person except to the extent reflected and fully reserved
against in the Financial Statements. All liabilities of the Company can be
prepaid without penalty at any time.
(f) All statutory insurance reserves recorded in the accounting
records of the Company, for insurance policy benefits, losses, claims and
expenses, including unpaid loss and loss adjustment expense liabilities,
and any other reserves are reasonable and adequate and were prepared in
accordance with the statutory or accounting practices prescribed or
permitted by all applicable insurance regulatory authorities of all
jurisdictions in which the Company is licensed to transact insurance
business and in accordance with prudent customs and practices of the
insurance industry and make good and sufficient provision for all insurance
obligations of the Company with respect to all insurance written and
reinsured by the Company. Information furnished by Seller or the Company to
Purchaser regarding the historical calculation and methodology for
calculating the Company's reserves for incurred but not reported ("IBNR")
claims is true and correct and the methodology for calculating IBNR claims
has been consistently applied by the Company in calculating IBNR claims
since December 31, 1993 through the Closing Date.
(g) The Seller has delivered to the Purchaser complete pro forma
financial statements of the Company (the "Pro forma Financials") as of the
dates of the Annual Statements and the Interim Financial Statements (in
each case, prepared in the same manner as the Financial Statements and as
adjusted to give effect to the transactions contemplated hereby, including
the termination and commutation of the Pooling Agreement and the
termination and commutation of existing reinsurance agreements as provided
in Section 6.7 hereof.
3.6 Reinsurance Transactions and Type of Business.
(a) Schedule 3.6(a) lists each reinsurance agreement or arrangement
pursuant to which the Company reinsures business (collectively, the
"Reinsured Business") written by a Fronting Company. Schedule 3.6(b) lists
each reinsurance agreement or arrangement pursuant to which the Company
cedes business written by the Company to any reinsurer or pursuant to which
the California Business is ceded to any reinsurer (the "Ceded Business").
The Company is not a party to any reinsurance agreement or fronting
arrangement not listed on Schedule 3.6(a) or 3.6(b). Seller has provided
to Purchaser all reinsurance or fronting agreements relating to the
Reinsured Business and the Ceded Business and all schedules,
reconciliations and other records relating to the Reinsured Business and
the Ceded Business including but not limited to, all information
documenting the type of Reinsured Business and the Ceded Business,
character of premiums, cash flow losses and underwriting results. Neither
the Company nor any party to any reinsurance agreement listed on Schedule
3.6(a) or 3.6 (b) is in default or violation of such reinsurance agreement.
All Nonstandard Business written by Seller or any Fronting Company will be
reinsured by the Company or by Millers from and after the Closing. The
Company has delivered provisional notices of cancellation of the
reinsurance agreements listed on Schedule 3.6(c) and such reinsurance
agreements will be terminated without cost or penalty to the Company on or
before the Closing. Schedule 3.6(d) lists each additional reinsurance
agreement that will be terminated by the Company without cost or penalty on
or before the Closing. Schedule 3.6(e) lists each reinsurance agreement or
other agreement that will be commuted without cost or penalty to the
Company on or before the Closing. Schedule 3.6(f) lists each new or
surviving reinsurance agreement to be effective on and after the Closing.
(b) From and after the Closing, the Company shall have no liability
with respect to any type of insurance business written or reinsured by the
Company prior to the Closing other than (i) the Nonstandard Business and
(ii) the insurance business reinsured by Seller pursuant to the Assumption
Agreement.
3.7 Absence of Certain Changes or Events. Since December 31, 1998:
(a) the Company has not incurred any obligation or liability in excess
of twenty-five thousand dollars ($25,000) (contingent or otherwise), except
current liabilities incurred in the ordinary course of business;
(b) the Company has not discharged or satisfied any lien or
encumbrance or paid any obligation or liability (contingent or otherwise)
in excess of twenty-five thousand dollars ($25,000), except current
liabilities outstanding on the applicable date set forth above, current
liabilities incurred since such date in the ordinary course of business and
obligations and liabilities under contracts listed in Schedule 3.11 hereto;
(c) the Company has not mortgaged, pledged or subjected to lien,
charge, security interest or other encumbrance any of its assets or
properties, except in the ordinary course of business;
(d) the Company has not sold, transferred, leased or otherwise
disposed of any of its assets or properties, except in the ordinary course
of business and for a fair consideration nor has the Company entered into
any reinsurance agreements or treaties;
(e) the Company has not canceled or compromised any debt owed to it or
claimed by it, except in the ordinary course of business;
(f) the Company has not knowingly and expressly waived or released any
rights of substantial value;
(g) the Company has not sold, assigned, transferred or granted any
rights under any licenses, franchises, patents, inventions, trademarks,
service marks, trade names, or copyrights or rights with respect to any
know-how or other intangible assets, which sale, assignment, transfer or
grant would have a Material Adverse Effect on it;
(h) the Company has not amended or terminated any reinsurance
agreement or treaty, third party administration agreement, agency agreement
or any other contract, franchise, agreement or license to which it is a
party, which amendment or termination would have a Material Adverse Effect
on it;
(i) the Company has not knowingly disposed of or permitted to lapse
any rights for the use of any patent, trademark, service mark, trade name
or copyright or knowingly disposed of or disclosed to any person not an
employee, supplier, broker, distributor or customer any trade secret,
process or know-how not theretofore a matter of public knowledge, which
dispositions or disclosures would have an Material Adverse Effect on it;
(j) the Company has not terminated the employment of any department
head or officer of the Company or entered into (i) any written employment
agreement or (ii) any oral employment agreement not terminable without
penalty by any party thereto upon 60 days notice;
(k) the Company has not increased the rate of compensation or bonus
payments payable or to become payable to any of its officers or directors
(including, without limitation, any payment of or promise to pay any bonus
or special compensation);
(l) the Company has not declared any dividend or made any payment or
distribution to its shareholders;
(m) the Company has not purchased, redeemed, issued, sold or otherwise
acquired or disposed of any of its shares of capital stock or other equity
securities, or agreed to do so, or granted any options, warrants or other
rights to purchase or convert any obligation into any shares of its capital
stock or any evidence of indebtedness or other securities;
(n) the Company has not entered into any other transaction, contract
or commitment other than in the ordinary course of business;
(o) the Company has not agreed to do any of the things described in
the preceding clauses (a) through (n);
(p) no event or circumstance has occurred resulting in a Material
Adverse Effect on the Company;
(q) there has not been any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the property or
business of the Company; and
(r) there has not been any material change in the operation of the
business of the Company or any material transactions entered into, except
such changes and transactions occurring in the ordinary course of business
and not otherwise required to be disclosed pursuant to this Section 3.7.
3.8 Taxes. The Company has timely filed or caused to be timely filed
(including allowable extensions) all federal, state, local, foreign and other
tax returns (including all consolidated, unitary or combined returns of any
group which includes the Company as a member) for income taxes, premium taxes,
sales taxes, withholding taxes, employment taxes, property taxes, franchise
taxes and all other taxes of every kind whatsoever which are required by law to
have been filed. The Company has paid or caused to be paid all taxes,
assessments, fees, penalties and other governmental charges which have become
due and payable and all other taxes, assessments, fees, penalties and other
governmental charges which have become due and payable. The Company has not
filed or entered into any election, consent or extension agreement that extends
the applicable statute of limitations with respect to its liability for taxes.
The provisions for income and other taxes reflected in the balance sheet
included in the 1998 Financial Statements and the Interim Financial Statements
make adequate provision for all accrued and unpaid taxes of the Company, whether
or not disputed, and the Company has made and will continue to make adequate
provision for such taxes on its books and records until the Closing Date,
including any taxes arising from the transactions contemplated by this
Agreement. The Company is not a party to any action or proceeding pending or
threatened by any governmental authority for assessment or collection of taxes;
no unresolved claim for assessment or collection of such taxes has been asserted
against the Company, and no audit or investigation by state or local government
authorities is under way. There is and will be no further liability for any such
taxes, whether by future deficiency assessments or otherwise, and no interest or
penalties accrued or accruing with respect thereto. Seller has delivered to
Purchaser the federal income and state premium tax returns of the Company for
the taxable years ended in 1996, 1997 and 1998 and all state premium tax reports
and returns of the Company for the period between January 1, 1999 and the date
of this Agreement, and the taxes paid and payable, as reflected in all such
returns and reports, state accurately the total tax payable for the periods
designated.
3.9 Real Property.
(a) Schedule 3.9 contains a complete and accurate list of all real
property owned or leased by the Company (the "Schedule 3.9 property"). the
Company has good and marketable title to all Schedule 3.9 property owned by
the Company free and clear of all liens, claims and encumbrances. All
improvements on the Schedule 3.9 property are in good condition and repair,
reasonable wear and tear excepted.
(b) Except as disclosed in Schedule 3.9, there are no existing leases,
subleases, tenancies, licenses, contracts or other agreements relating to
the Schedule 3.9 property to which the Company is a party (the "Leases"),
and the Company has delivered to Purchaser true and complete copies of all
of the Leases of the Schedule 3.9 property.
(c) Except as disclosed in Schedule 3.9, (i) each of the Leases to the
Company of the Schedule 3.9 property is valid, and neither the Company, nor
to the best knowledge of Seller and the Company, any other party thereto,
is in default thereunder, nor is there any event which with notice or lapse
of time, or both, would constitute a default thereunder by the Company or,
to the knowledge of Seller or the Company, any other party thereto and (ii)
the Company has not received notice that any party to any Lease intends to
cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder.
(d) None of the Schedule 3.9 property has ever been used by the
Company or, to the best knowledge of Seller and the Company, by any
previous owners and/or operators to generate, manufacture, refine, produce,
store, handle, transfer, process or transport any hazardous wastes or
substances and the Company has not used in the past any of the Schedule 3.9
property for the principal or primary purpose of generating, manufacturing,
refining, producing, storing, handling, transferring, processing or
transporting of hazardous wastes or substances. The Company is in
compliance with all rules, laws and regulations relating to the use,
treatment, storage and disposal of toxic substances and protection of
health or the environment ("Environmental Laws") which are applicable to
its business and the Company has not received any written notice from any
governmental authority or third party of an asserted claim under
Environmental Laws. The Company will not be required to make future
material capital expenditures to comply with Environmental Laws and to the
best knowledge of the Seller and the Company, no property which is owned,
leased or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. 9601, et seq.), or otherwise designated as a
contaminated site under applicable state or local law.
(e) The Company has all easements of ingress and egress necessary for
all operations conducted by it from the real properties referred to in
Schedule 3.9; and none of such properties has been condemned, requisitioned
or otherwise taken by any public authority, and no such action is
threatened or, to the best knowledge of Seller and the Company,
contemplated.
3.10 Personal Property.
(a) Schedule 3.10 contains a complete and accurate list as of January
1, 1999, of all personal property owned by the Company (other than any
nonmaterial personal property having a book value less than $1,000.00) and
all personal property whether owned or not subject to any (i) lease, (ii)
license, (iii) rental agreement, (iv) contract of sale or (v) other
agreement to which the Company is a party. The personal property set forth
on Schedule 3.10, other than personal property disposed of in the ordinary
course of business since January 1, 1999, all other personal property
acquired by the Company since January 1, 1999 and all personal property
subjected, subsequent to January 1, 1999, to any of the agreements
described in (i) through (v) of the preceding sentence is hereafter
referred to as the "Schedule 3.10 property."
(b) Except as otherwise described in Schedule 3.10, the Schedule 3.10
property is (i) free and clear of all liens, other than liens for taxes not
yet due and payable, mortgages, pledges, security interests, conditional
sales agreements, charges, encumbrances and other adverse claims or
interests of any nature whatsoever, and (ii) is in good operating condition
and repair, reasonable wear and tear excepted. The Schedule 3.10 property,
taken as a whole, is reasonably fit and usable for the purposes for which
it is being used, reasonably sufficient for all current operations and
business of the Company, and conforms with all applicable ordinances,
regulations and laws. Each lease, license, rental agreement, contract of
sale or other agreement to which any Schedule 3.10 property is subject is
valid and neither the Company nor, to the knowledge of Seller and the
Company, any other party thereto is in default thereunder, nor is there any
event which with notice or lapse of time, or both, would constitute a
default thereunder by the Company or, to the knowledge of Seller and the
Company, any other party thereto. The Company has not received notice that
any party to any such lease, license, rental agreement, contract of sale or
other agreement intends to cancel, terminate or refuse to renew the same or
to exercise or decline to exercise any option or other right thereunder. No
Schedule 3.10 property is subject to any lease, license, contract of sale
or other agreement that is adverse to the business, properties or financial
condition of the Company.
3.11 Contracts. Schedule 3.11 contains a complete and accurate list of (i)
all oral contracts the performance of which is required by any party thereto as
a result of the consummation of the transactions contemplated by this Agreement,
(ii) all oral contracts not terminable without penalty by any party thereto upon
60 days notice and (iii) all written contracts involving a present or future
obligation by any party of an amount in excess of $25,000 individually or in the
aggregate with respect to multiple contracts of the same type (except for
Nonstandard Business insurance policies and the insurance policies for the lines
of insurance business written by the Company as set forth in the Company's
Annual Statement written in the ordinary course of business and except as
otherwise specified below), to which the Company is a party, true and complete
copies or summaries of each of which have been delivered to Purchaser by the
Seller, including, without limitation, any:
(a) mortgage, security agreement, chattel mortgage or conditional
sales agreement or any similar instrument or agreement, involving a present
or future obligation of an amount in excess of $25,000;
(b) agreement, commitment, note, indenture or other instrument
relating to the borrowing of money, or the guaranty of any such obligation
for the borrowing of money;
(c) joint venture or other agreement with any person, firm,
corporation or unincorporated association doing business either within or
outside the United States relating to sharing of present or future
commissions, fees or other income or profits, excluding vending machine
revenue sharing agreements with the site operator;
(d) lease of personal property to the Company involving a present or
future obligation of an amount in excess of $25,000;
(e) reinsurance agreements;
(f) non-competition agreements;
(g) agency contracts and agency appointments;
(h) third party administration agreements;
(i) advertising, marketing and promotional agreements (including, but
not limited to, any agreements providing for discounts and/or rebates),
involving a present or future obligation of an amount in excess of $25,000;
or
(j) agreements with suppliers, involving a present or future
obligation of an amount in excess of $25,000.
Except as disclosed in Schedule 3.11, all contracts and leases
referred to in Schedule 3.11 are valid and enforceable, the Company
has performed all obligations imposed upon it thereunder, and neither
the Company, nor, to the knowledge of Seller and the Company, any
other party thereto is in default thereunder, nor is there any event
which with notice or lapse of time, or both, would constitute a
default thereunder by the Company, or, to the knowledge of Seller and
the Company, any other party thereto.
3.12 Legal Proceedings. Except as set forth in Schedule 3.12, there are no
claims, actions, suits, arbitrations, grievances, proceedings or investigations
pending or, to the best knowledge of Seller and the Company, threatened against
the Company, at law, in equity, or before any federal, state, municipal or other
governmental or nongovernmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, and there are no outstanding or
unsatisfied judgments, orders, decrees or stipulations to which the Company is a
party which could have a Material Adverse Effect on the Company. Except as set
forth in Schedule 3.12, the Company is not presently engaged in or contemplating
any legal action to recover moneys due to it or damages sustained by it. The
Company is not in violation of or in default with respect to any applicable
judgment, order, writ, injunction or decree, the effect of which may be adverse
to the Company.
3.13 Labor Matters. There are no controversies pending or, to the best
knowledge of Seller and the Company, threatened between the Company and any of
its employees. The Company has complied with all laws relating to the employment
of labor, including any provisions thereof relating to wages, hours, collective
bargaining, safety and the payment of withholding and social security and
similar taxes, and the Company has no liability for any arrears of wages or
taxes or penalties for failure to comply with any of the foregoing.
3.14 Patents, Trademarks, Franchises, etc. A true and complete list of (i)
all patents, patent applications, patent agreements, license arrangements
relating to patents, consulting agreements relating to patents, trademark
registrations and applications therefor, trade names, service marks and
copyright registrations and applications therefor, and franchises and franchise
agreements to which the Company is a party or which are used in its business and
are owned by or licensed to the Company and (ii) any interference actions or
adverse claims made or, to the best knowledge of the Company, threatened in
respect thereof and any claims made or, to the best knowledge of the Company,
threatened for alleged infringement thereof, is set forth in Schedule 3.14. All
patents and trademarks listed on Schedule 3.14 as being owned by the Company and
registered in the U.S. Patent Office have been duly issued or registered
therein, all such registrations have been validly issued and all are in full
force and effect. The Company does not infringe any valid patent, trademark,
trade name, service mark or copyright of any other person or entity. Each
agreement listed in Schedule 3.14 is valid and enforceable, the Company has
performed all obligations imposed upon it thereunder, and neither the Company
nor, to the knowledge of Seller and the Company, any other party thereto is in
default thereunder, nor is there any event which with notice or lapse of time,
or both, would constitute a default thereunder by the Company, or, to the
knowledge of Seller and the Company, any other party thereto. The Company has
not received notice that any party to any such agreement intends to cancel,
terminate or refuse to renew the same or to exercise or decline to exercise any
option or other right thereunder.
3.15 Loans, Notes, Accounts Receivable and Accounts Payable. The loans,
notes and accounts receivable reflected in the Financial Statements and all such
loans, notes and accounts receivable arising after the applicable dates of such
Financial Statements arose, and have arisen, from bona fide transactions of the
Company, and the bad debt reserves established in connection with such loans,
notes, and accounts receivable are in conformity with generally accepted
accounting principles. Accounts payable of the Company reflected in such
Financial Statements and all accounts payable arising after the applicable dates
of such Financial Statements arose, and have arisen, from bona fide
transactions.
3.16 Corporate Documents, Books and Records. Seller has furnished or made
available to Purchaser for its examination true, correct and complete copies of
(i) the Articles of Incorporation and bylaws of the Company, including all
amendments thereto; (ii) the minute book of the Company; and (iii) the stock
transfer book of the Company. The originals of all such corporate documents
shall be delivered to Purchaser at the Closing.
3.17 Absence of Sensitive Payment. The Company has not made or maintained
(i) any contributions, payments or gifts of its funds or property to any
governmental official, employee or agent where either the payment or the purpose
of such contribution, payment or gift was or is illegal under the laws of the
United States or any state thereof, or any other jurisdiction (foreign or
domestic); or (ii) any contribution, or reimbursement of any political gift or
contribution made by any other person, to candidates for public office, whether
federal, state, local or foreign, where such contributions by the Company were
or would be a violation of applicable law.
3.18 Corporate Insurance. All of the policies of insurance and bonds
presently in force with respect to the Company including, without limitation,
fire, liability and other insurance, are listed in Schedule 3.18, and valid
policies for such insurance as are shown to be in effect on the date of this
Agreement will be outstanding and duly in force at the Closing Date. There are
no claims pending, nor to the best knowledge of the Seller and the Company, are
there any claims threatened or any events or circumstances existing giving rise
to any claim against the Company or any officer, director or employee of the
Company that would be covered by the Company's errors and omission or directors
and officers liability insurance policy if such policy was in effect prior to
January 1, 1999. The Company has delivered or made available to Purchaser true
and complete copies of each insurance policy listed in Schedule 3.18.
3.19 Employees and Agents.
(a) Seller has delivered to Purchaser a detailed payroll register for
the Company for the payroll period ended December 31, 1998, together with a
listing of department and job codes and an organization chart of the
Company.
(b) Except as disclosed in Schedule 3.19(b), the Company is not a
party to any:
(i) management, employment or other contract providing for the
employment or rendition of executive services;
(ii) contract for the employment of any employee which is not
terminable by either the Company on 30 days' notice;
(iii) bonus, incentive, deferred compensation, severance pay,
pension, profit-sharing, retirement, stock purchase, stock option,
employee benefit or similar plan, agreement or arrangement (including
without limitation Christmas bonuses and similar year end bonuses);
(iv) collective bargaining agreement or other agreement with any
labor union or other employee organization and no such agreement is
currently being requested by, or is under discussion by management
with, any group of employees or others; or
(v) any other employment contract or other compensation agreement
or arrangement affecting or relating to current or former employees of
the Company.
(c) Schedule 3.19(c) lists all managing general agents, general agents
and independent agents (collectively, "Agents"), authorized to produce,
collect premiums, administer, settle claims or otherwise represent the
Company or any Fronting Company in connection with any Nonstandard
Business, Reinsured Business, Ceded Business or other business written or
reinsured by the Company or to be reinsured by Millers pursuant to the
Millers Agreement. The Company or the applicable Fronting Company, as the
case may be, is a party to a valid and binding written agency agreement
with each Agent and maintains a favorable relationship with each Agent and
no disputes are pending or anticipated by the Company or such Fronting
Company with any of the Agents. Each Agent is duly licensed to market and
sell the Policies written by the Company or the applicable Fronting
Company, as the case may be.
3.20 Employee Plans.
(a) Schedule 3.20 sets forth all employee pension benefit plans (as
such term is defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974 ("ERISA")) which are maintained by the Company (or
which cover employees of the Company) and designed to be qualified under
Section 401(a) of the Internal Revenue Code (the "Code").
(b) The Company has not maintained an employee pension benefit plan
which is designed to be qualified under Section 401(a) of the Code other
than the plans so described in Schedule 3.20. To the best knowledge of
Seller and the Company, such plans are qualified. The Company is and has at
all times been in compliance with all applicable provisions of ERISA, all
regulations promulgated under ERISA or the Code and other federal and state
statutes and regulations relating to such employee pension benefit plans.
No event has occurred or, to the knowledge of Seller and the Company, is
threatened or about to occur that would constitute a reportable event
within the meaning of Section 4043(b) of ERISA, and no notice of
termination has been filed by a plan administrator pursuant to Section 4041
or 4041A of ERISA or issued by the Pension Benefit Guaranty Corporation
("PBGC") pursuant to Section 4042 of ERISA with respect to any employee
pension benefit plan of the Company subject to ERISA. The Internal Revenue
Service has issued favorable determination letter(s) on the plan(s)
identified in Schedule 3.20 and Purchaser has been provided copies of such
letters. To the best knowledge of Seller and the Company, nothing has
occurred since the date of any such determination letter that has adversely
affected the validity of the letters.
(c) Full payment has been made of all amounts that the Company is
required under the terms of all employee pension benefit plans to have paid
as contributions to such plans, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or
not waived, exists with respect to any such plan. The Company has paid all
premiums (and interest charges and penalties for late payment, if
applicable) due the PBGC with respect to each employee pension benefit plan
and each plan year thereof for which such premiums are required.
(d) As of the Closing Date all employee pension benefit plans which
are designed to meet the requirements of Section 401(a) of the Code will be
sufficiently funded so that no funding liability would result if such plans
were terminated as of such date. The funding method used in connection with
each employee pension benefit plan is acceptable under ERISA, the actuarial
assumptions used in connection with funding such employee pension benefit
plan in the aggregate are reasonable (taking into account the experience of
such employee pension benefit plan and reasonable expectations).
(e) The Company maintains employee pension benefit plan(s) which are
not designed to be qualified under Section 401(a) of the Code as listed on
Schedule 3.20. The participants in such plans, the actuarially determined
present value at December 31, 1998 of their vested benefits, and the
actuarial assumptions and calculations used to determine such present value
are listed on Schedule 3.20 hereto. The Company is not delinquent in any
payments under any of such plans. The Company is and has at all times been
in compliance with all applicable provisions of ERISA, the Code, and all
regulations promulgated under ERISA or the Code and other federal and state
statutes relating to such employee pension benefit plans.
(f) The Company maintains employee welfare benefit plans (as such term
is defined in Section 3(1) of ERISA as listed on Schedule 3.20). The name
of each plan, participants or class of participants and description of
benefits are listed on Schedule 3.20 hereto. The Company is and at all
times has been in substantial compliance with all applicable provisions of
ERISA, the Code, and all regulations promulgated under ERISA or the Code,
and other federal and state statutes and regulations relating to such
employee welfare benefit plans. Full payment has been made of all amounts
that the Company is required under the terms of such employee welfare
benefit plans to have paid as contributions to such plans or as benefits
under such plans except claims for benefits which are currently under
administrative review pursuant to reasonable and consistent administrative
procedures established for the operation of such plans.
(g) Schedule 3.20 lists all other fringe benefits or payment practices
maintained by the Company and not otherwise identified in this section.
(h) Copies of all documents constituting the plans or written
agreement describing any employee benefit plan, letter agreement,
compensation arrangement or other program maintained by the Company have
been previously furnished to Purchaser including any filings with any
government office relating thereto, any contracts relating to assets of any
such plans, and any actuarial or other calculations relating to the amount
of benefits payable under such plans.
(i) No event has occurred and no condition exists relating to any
employee benefit plan (i) that could result in the imposition of an excise
tax on the Company, (ii) that would justify the attachment of a lien on the
assets of the Company, or (iii) that could result in fiduciary liability
being imposed on the Company under Section 404 of ERISA.
(j) There are no pending or, to the knowledge of Seller and the
Company, threatened claims, suits, or other proceedings involving any
employee benefit plan or compensation arrangement other than ordinary and
usual claims for participants and beneficiaries.
(k) The transactions contemplated by this Agreement will not result in
any employee, former employee, or other person being entitled to any
severance benefit other than the severance benefits described on Schedule
3.20 hereto.
3.21 Transactions with Related Parties. Except for transactions disclosed
in Schedule 3.21, there have been no loans or other transactions between the
Company and Seller or any officer, director, shareholder or affiliate of Seller
or the Company. Except as disclosed in Schedule 3.21, neither Seller, any
officer or director of Seller or the Company nor any spouse or child of any such
person owns or has any interest in, directly or indirectly, any real or personal
property owned by or leased to the Company. Not later than the Closing Date, all
loans between the Company and its affiliates, directors and officers shall have
been paid, and each affiliate, director and officer of the Company shall have
released the Company from any and all claims and such releases shall have been
delivered to Purchaser.
3.22 Directors and Officers; Banks. Schedule 3.22 contains a true and
complete list showing (i) the names of all the officers and directors of the
Company; (ii) the name of each bank in which either the Company has an account
or a safety deposit box and the names of the persons authorized to draw thereon
or having access thereto; and (iii) the name of each person holding a general or
limited power of attorney from the Company and the extent of such power.
3.23 Ownership, Quality and Location of Material Assets. The Company does
not utilize in its business any assets not reflected in the Financial Statements
except for assets which have been fully amortized or depreciated and which are
owned or leased by the Company, and franchises, licenses, trademarks and
tradenames. All properties and assets of the Company are in the possession and
control of the Company. As of the date hereof, no physical assets of any value
(other than employee personal effects) are on the premises at the locations
operated by the Company which do not belong to or are not leased by the Company.
The assets of the Company (i) constitute all of the assets, properties,
licenses, systems, software and other arrangements which are presently being
used or are reasonably related to the business of the Company, (ii) are not
subject to any change of control or similar provision that would impair or
restrict the Company's use of such assets following the Closing and (iii) are
sufficient to operate the business of the Company in a manner consistent with
past practices and at the Company's historic levels other than (A) reinsurance
agreements listed on Schedule 3.6 that will be terminated at the Closing and (B)
software and hardware to be retained by Seller or its affiliates as listed on
Schedule 3.14 (the "Retained Systems"). Except for the Retained Systems, no
Systems (as defined in Section 3.28) used by the Company will be retained by the
Seller or its affiliates nor will any Systems become unavailable to the Company
or subject to any fees or expenses for continued availability as a result of the
sale of the Shares to Purchaser. The retention by Seller or its affiliates of
the Retained Systems will have no Material Adverse Effect on the Company.
3.24 Absence of Undisclosed Liabilities. The Company has no liabilities of
any nature, whether accrued, absolute, contingent or otherwise, not disclosed
elsewhere herein or in the Schedules hereto or adequately reflected or reserved
against in the Financial Statements, other than current liabilities incurred in
the ordinary course of business since March 31, 1999.
3.25 Brokerage. Neither Seller nor the Company has retained any broker or
finder in connection with the transactions contemplated by this Agreement. If
any broker or finder asserts a claim for a fee as a result of such transactions,
based upon a contract, written or oral, with either Seller and/or the Company,
such claim shall be payable by Seller.
3.26 Permits and Licenses. Except as set forth on Schedule 3.26, (a) the
Company has all certificates of authority, licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and orders
necessary to conduct its business and to operate its properties and assets,
including, but not limited to, all licenses to write each line of insurance
written by the Company in each State or jurisdiction as set forth in the Annual
Statement, and such certificates of authority, licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and orders
are in full force and effect and are set forth in Schedule 3.26; (b) no
violations exist in respect of any license, clearance, permit, franchise, grant,
authorization, easement, consent, certificate or order of the Company; (c) no
proceeding is pending or threatened looking toward the revocation or limitation
of any such certificate of authority, license, clearance, permit, franchise,
grant, authorization, easement, consent, certificate or order and there is no
basis or ground for any such revocation or limitation. Except as set forth in
Schedule 3.26, there are no statutory provisions or conditions in any
certificate of authority that would prohibit, limit or impair the ability of the
Company to continue to write insurance under such certificate of authority as a
result of the purchase of the Shares by Purchaser. The Company has complied with
all laws, rules, regulations, ordinances, codes, licenses, clearances, permits,
franchises, grants, authorizations, easements, consents, certificates and orders
relating to any of its properties or applicable to its business, including, but
not limited to, labor, equal employment opportunity, occupational safety and
health, consumer protection, environmental, securities and antitrust laws and
regulations. The Company is not in violation of any applicable zoning, building
or environmental regulation, ordinance or other law, order, regulation,
restriction or requirement relating to its operations or properties, whether
such properties are owned or leased, and no governmental body or other person
has claimed that any such violation exists, or called attention to the need for
any work, repairs, construction, alterations or installation on or in connection
with the properties of the Company. Neither Seller nor the Company has any
knowledge of any pending or threatened action or proceeding which could result
in a modification or termination of the zoning laws which modification or
termination would adversely affect the Company or any of its property.
3.27 Policy Data. The Company possesses and will possess at the Closing all
Policy Data relating to all insurance policies (i) issued by the Company, (ii)
reinsured by the Company on the date of this Agreement and at the Closing, (iii)
to be reinsured the Company under all Continuing State Agreements and all
Additional State Agreements to be delivered at the Closing and (iv) to be
reinsured by Millers under the Millers Agreement (collectively, "Policies").
"Policy Data" shall mean all insurance policyholder lists and all other records,
documents, data and information (in whatever form or medium maintained),
including copies thereof, which pertain to the Policies and which may be
reasonably necessary for the administration and servicing of the Policies,
including, but not limited to, all records, files and computer tapes pertaining
to policyholders, claims, losses and expenses, sales, premiums, reserve runs and
reserve factors, financial matters, complaint records, applications, Policies,
lapsed policies for all periods commencing after December 31, 1993 and, if so
requested by Purchaser, for any period during the five years ended December 31,
1993, original authorizations for preauthorized check or electronic fund
transfers for premium payments, reinsurance records, records relating to
regulatory matters, agent files and contracts and all toll-free telephone
numbers currently used in connection with the servicing of the Policies. Seller
has provided to Purchaser copies of all underwriting guidelines and other
information used or provided by the Company or the Agents in connection with the
issuance of the Policies.
3.28 Year 2000 Complaint. All of the Systems of the Company are Year 2000
Compliant. For the purpose of the Agreement:
(a) "Year 2000 Compliant" means, (i) the functions, calculations, and
other computing processes of the System (collectively, "Processes") perform
in a consistent manner regardless of the date in time on which the
Processes are actually performed and regardless of the Date Data input to
the System, whether before, on, during or after January 1, 2000 and whether
or not the Date Data is affected by leap years, (ii) the System accepts,
calculates, compares, sorts, extracts, sequences, and otherwise processes
Date Data, and returns and displays Date Data, in a consistent manner
regardless of the dates used in such Date Data, whether before, on, during
or after January 1, 2000, (iii) the System will function without
interruptions caused by the date in time on which the Processes are
actually performed or by the Date Data input to the System, whether before,
on, during, or after January 1, 2000, (iv) the System accepts and responds
to two-digit year-date input in a manner that resolves any ambiguities as
to the century in a defined, pre-determined and appropriate manner, (v) the
System stores and displays Date Data in ways that are unambiguous as to the
determinations of the century and (f) no Date Data will cause the System to
perform an abnormally ending routine or function within the Processes or
generate incorrect values or invalid results as a result of the date
element included in the Date Data.
(b) "Systems" means the computer equipment (owned or leased) and
computer software (owned or licensed) of the Company (or of Seller or its
affiliates if used by the Company).
(c) Date Data" means any data, formula, algorithm, process, input or
output that includes, calculates or represents a date, a reference to a
date or a representation of a date.
3.29 Full Disclosure. No information furnished, or to be furnished, by
either Seller or the Company to Purchaser in connection with this Agreement
(including, but not limited to, the Financial Statements and all information in
the Schedules hereto) is, or will be, false or misleading and such information
includes all facts required to be stated therein or necessary to make the
statements therein not misleading.
ARTICLE 4.
CONDUCT OF BUSINESS PENDING THE CLOSING
4.1 Conduct of Business by the Company Pending the Closing. Seller
covenants and agrees that, prior to the Closing Date, unless Purchaser shall
otherwise agree in writing or as otherwise expressly contemplated by this
Agreement Seller shall cause the Company to comply with the following:
(a) The businesses of the Company shall be conducted only in, and the
Company shall not take any action except in the ordinary course of business
and consistent with past practices, and the Company shall use its best
efforts to maintain and preserve its business organization, assets,
prospects, employees and advantageous business relationships;
(b) The Company shall not, directly or indirectly, do any of the
following: (i) authorize for issuance, issue, sell, pledge, deliver, or
agree or commit to issue, sell, pledge or deliver (whether through the
issuance or grant of options, warrants, commitments, subscriptions, rights
to purchase or otherwise) any capital stock of the Company or securities or
rights convertible into or exchangeable for, shares of capital stock or
securities convertible into or exchangeable for such shares or (ii) pledge,
dispose of or encumber, except in the ordinary course of business, any
assets of the Company (including any indebtedness owed to it or any claims
held by it); (iii) amend or propose to amend its charter or bylaws or
similar organizational documents; (iv) split, combine or reclassify any
shares of its capital stock or declare, set aside or pay any dividend or
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock; (v) redeem, purchase or otherwise acquire or
offer to redeem, purchase or otherwise acquire any capital stock of the
Company; (vi) transfer any assets or liabilities to any subsidiary;
(c) The Company shall not, directly or indirectly, (i) acquire (by
merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof or make any
investment either by purchase of stock or securities, contributions to
capital, property transfer or purchase of any amount of property or assets
of any other individual or entity; (ii) acquire any assets for a value in
excess of $50,000 other than in the ordinary course of business; (iii)
dispose of any assets with a value in excess of $50,000 other than in the
ordinary course of business; (iv) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee, endorse or otherwise as
an accommodation become responsible for, the obligations of any other
individual or entity, make any loans or advances or enter into any other
transaction, except in the ordinary course of business and consistent with
past practice; (v) authorize, recommend or propose any change in its
capitalization or any release or relinquishment of any contract right; or
(vi) authorize or propose any of the foregoing or enter into or modify any
contract, agreement, commitment or arrangement with respect to any of the
foregoing;
(d) The Company shall not enter into or adopt any new, or amend any
existing, severance or termination benefit arrangements, consulting
agreements, any employment benefit plans, or arrangement;
(e) Except for arrangements existing prior to January 1, 1999 or as
noted in Schedule 3.20, the Company (except for salary increases or other
employee benefit arrangements in the ordinary course of business) shall not
adopt or amend any bonus, profit sharing, compensation, stock option,
pension, retirement, deferred compensation, employment or other employee
benefit plan, agreement, trust, plan, fund or other arrangement for the
benefit or welfare of any employee or increase or pay any benefit not
required by any existing plan and arrangement;
(f) The Company shall not, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction
in the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the Company's Financial
Statements or incurred in the ordinary course of business and consistent
with past practice;
(g) The Company shall not waive, release, grant or transfer any
franchises, franchise agreements, patents, patent rights, trademarks,
trademark rights, trade names, trade name rights, copyrights or know-how or
modify or change in any respect any existing license, lease, contract
franchise, franchise agreement or other document, other than in the
ordinary course of business and consistent with past practice;
(h) The Company shall use its best efforts to preserve its business
organization intact, to keep available the services of its current officers
and key employees and to maintain satisfactory relationships with
reinsurers, policyholders, licensors, licensees, suppliers, contractors,
distributors, customers and others having significant business
relationships with the Company;
(i) The Company shall not enter into, modify, amend, or terminate any
reinsurance agreements;
(j) The Company shall not make capital expenditures in the aggregate
in excess of $50,000; or
(k) The Company shall not authorize or propose any of the foregoing or
enter into any contract, agreement, commitment or arrangement to do any of
the foregoing.
4.2 Agency and Other Relationships. From and after the date hereof and
until the Closing, Seller will cause the Company to use its reasonable efforts
to maintain its favorable relationships with its Agents, brokers, insurance
companies, reinsurers, coinsurers, suppliers, policyholders and customers
subject to such changes as may be made in the ordinary course of business.
Without the prior written approval of Purchaser, from and after the date hereof
through the Closing, neither Seller nor the Company nor any Fronting Company
shall directly or indirectly (i) disclose Confidential Information (as defined
in the Noncompetition Agreement) regarding the Company's relationship with its
Agents, brokers, insurers, reinsurers, coinsurers, suppliers, policyholders and
customers, (ii) solicit or induce, or in any manner attempt to solicit or induce
any person employed by, or an agent of, the Company to terminate his contract of
employment or agency, as the case may be, with the Company, or (iii) solicit,
divert, or attempt to solicit or divert, as a policyholder, supplier or
customer, any person, concern or entity which, as of the date of this Agreement
or during the one year period prior to the Closing Date was a policyholder of an
insurance policy written or reinsured by the Company, furnishes products or
services (including reinsurance) to, or receives products and services from the
Company, nor will Seller, the Company or any Fronting Company attempt to induce
any policyholder, agent, reinsurer, supplier or customer to cease being (or
prospective policyholder, agent, reinsurer, supplier or customer not to become)
a policyholder, agent, reinsurer, supplier or customer of the Company. The
provisions of Sections 4.2(ii) and (iii) shall not apply to any solicitation or
inducement directed at the public in general and/or found in general
publications.
4.3 Related Party Transactions. From and after the date hereof and until
the Closing, Seller will provide Purchaser with a schedule of all existing
Related Party Transactions and intercompany reinsurance arrangements of the
Company, including a fee basis schedule, and will not permit the Company, to
engage in any new Related Party Transactions or intercompany reinsurance
arrangements. "Related Party Transactions" shall mean any and all contracts,
agreements, arrangements or transactions, other than reinsurance arrangements,
occurring between the Company and (i) Seller, (ii) Seller's affiliates or (iii)
any directors, officers, employees or agents of the Company, Seller or Seller's
affiliates. Notwithstanding the terms and provisions of any such agreement, all
Related Party Transactions shall, unless otherwise agreed prior to the Closing
or contemplated by the terms of the Agreement, terminate and cease as of the
Closing without penalty to the Company, and with a return to the Company of the
appropriate pro-rata portion of any advances paid by the Company, for services
that would have been performed after the Closing.
4.4 Resignations of Directors and Officers. Seller will cause the officers
(as may be requested by Purchaser in writing at least 7 days prior to Closing)
and the members of the board of directors of the Company and any of its
subsidiaries to tender, effective at the Closing, their resignations as officers
or directors of the Company and any of its subsidiaries.
4.5 Additional Interim Financial Statements. Seller shall deliver to
Purchaser, within twenty (20) calendar days after the end of each month during
the period between the date of this Agreement and the Closing, unaudited
financial statements of the Company as of each month end prepared in accordance
with consistently applied. Each such additional interim financial statement
shall also include a pro forma financial statement of the same date giving pro
forma effect to the transactions contemplated by this Agreement.
4.6 No Shopping.
(a) The Seller, the Company, their affiliates, and their respective
officers, directors, employees, representatives, and agents will
immediately cease any existing discussions or negotiations, if any, with
any person or group conducted heretofore with respect to any acquisition of
all or any material portion of the assets of, or any equity interest in,
the Company or any business combination with the Company (an "Other
Transaction"). The Company may, directly or indirectly, furnish information
and access, in each case only in response to unsolicited requests therefor,
to any person or group made after the date of this Agreement that was not
encouraged, solicited, or initiated by the Seller or the Company or any of
their affiliates, or their respective officers, directors, agents, or
representatives after the date of this Agreement, pursuant to appropriate
confidentiality agreements, and may participate in discussions and
negotiate with such person or group concerning an Other Transaction
involving the Company, if such person or group has submitted a written
proposal to the Board of Directors of the Company or Seller relating to any
such Other Transaction and failing to take such action would constitute a
breach of fiduciary duty under applicable law in the written opinion of
outside counsel to Seller. The Board of Directors of the Company or Seller,
as the case may be, will provide a written copy of such proposal to the
Purchaser immediately after receipt and will keep the Purchaser promptly
advised of any development with respect to such matters. Except as set
forth above, neither the Seller, the Company nor any of their affiliates,
nor any of their respective officers, directors, employees,
representatives, or agents, will, directly or indirectly, for the account
of the Company or for their own account, encourage, solicit, participate
in, or initiate discussions or negotiations with, or provide any
information to, any person or group (other than the purchaser) concerning
an Other Transaction involving the Company.
(b) The Seller or the Company may, by written notice to Purchaser at
any time prior to the Closing Date, terminate this Agreement if the Seller
or the Company enters into, executes or agrees to an Other Transaction with
respect to the Company following a determination by the Board of Directors
of the Seller on the written advice of outside counsel that the failure to
take such action would constitute a breach of fiduciary duties under
applicable law and such action is taken in compliance with the provisions
of this Section 4.6.
(c) In order to induce Purchaser to enter into this Agreement and to
compensate Purchaser for the time and expenses incurred in connection with
this Agreement and the transactions contemplated hereby and the losses
suffered by Purchaser from foregone opportunities, the Seller shall pay a
break-up fee equal to $1,000,000 (the "Break-Up Fee") to Purchaser in
immediately available funds within three business days of the date the
Seller or the Company terminates this Agreement pursuant to this Section
4.6. The parties agree that the agreements contained in this Section 4.6
are an integral part of the transactions contemplated by this Agreement and
constitute liquidated damages and not a penalty.
ARTICLE 5.
FEDERAL INCOME TAX MATTERS
5.1 Section 338 Election . If requested by Purchaser, Purchaser and Seller
shall join in an election to have the provisions of Section 338(h)(10) of the
Code and similar provisions of state law ("Section 338 Election") apply to the
acquisition of the Company. Purchaser shall be responsible for, and control, the
preparation and filing of such election. Seller and Purchaser shall mutually
agree in good faith to the determination of such purchase price allocations and
shall report, act, file in all respects and for all purposes consistent with
such determination of Purchaser. Seller shall execute and deliver to Purchaser
such documents or forms (including Section 338 Forms, as defined below) as
Purchaser shall request or as are required by applicable law for an effective
Section 338 Election. "Section 338 Forms" shall mean all returns, documents,
statements, and other forms that are required to be submitted to any federal,
state, county or other local taxing authority in connection with a Section 338
Election, including, without limitation, any "statement of Section 338 election"
and IRS Form 8023 (together with any schedules or attachments thereto) that are
required pursuant to Treasury Regulations.
5.2 Tax Indemnifications.
(a) For purposes of this Article 5, the term "Taxes" shall mean all
taxes, however, denominated, including any interest, penalties or other
additions to tax that may become payable in respect thereof, imposed by any
federal, territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or profits
taxes (including, but not limited to, federal income taxes and state income
taxes), real property gains taxes, payroll and employee withholding taxes,
unemployment insurance taxes, social security taxes, sales and use taxes,
premium taxes, ad valorem taxes, excise taxes, franchise taxes, gross
receipts taxes, business license taxes, occupation taxes, real and personal
property taxes, stamp taxes, environmental taxes, transfer taxes, workers'
compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which the Company is required to pay,
withhold or collect.
(b) Seller shall indemnify and hold Purchaser harmless from, and shall
be entitled to any credits or refunds of, all Taxes attributable to the
Company and its subsidiaries, with respect to (i) taxable periods ending on
or prior to the day of Closing ("Pre-Closing Periods"), including any Taxes
attributable to the Section 338 (h)(10) Election contemplated in Section
5.1 hereof; (ii) Seller or any member of an affiliated, consolidated,
combined or unitary Tax group of which the Company is or was a member prior
to the Closing Date that is imposed under Treasury Regulation Section
1.1502-6 (or any similar provision of state, local or foreign law) by
reason of such Company being included in any affiliated, consolidated,
combined or unitary Tax group and (iii) any taxes which relate to a tax
period which begins on or before the Closing Date and which ends after the
Closing Date (the "Straddle Period") allocated to the Seller pursuant to
Section 5.5(b) .
(c) Purchaser shall indemnify and hold the Seller harmless from, and
shall be entitled to any credits or refunds of (i) any Straddle Period
Taxes allocated to the Purchaser pursuant to Section 5.5(b) and all Taxes
attributable to the Company and its subsidiaries with respect to taxable
periods ending after the Closing Date ("Post Closing Periods") other than
Straddle Period Taxes allocated to the Purchaser pursuant to Section
5.5(b).
5.3 Final Determinations. Any payments by Seller to Purchaser or by
Purchaser to Seller of any tax liability under Section 5.2 which arise from an
audit or examination by a taxing authority of Tax returns shall be made upon a
final determination of such liability. "Final determination" shall mean, with
respect to any issue or item for any taxable period, (i) a final, unappealable
decision by a court of competent jurisdiction; (ii) the expiration of the time
for filing a claim for refund or, if a refund claim has been timely filed, the
expiration of the time for instituting suit in respect of such refund claim, if
no further adjustment to the items of income, gain, deduction, loss or credit
for such period may thereafter be made; (iii) the execution by or on behalf of
the taxpayer and the Service of a closing agreement under Section 7121 of the
Internal Revenue Code of 1986, as amended (the "Code") (iv) the acceptance by
the Internal Revenue Service (the "Service") or its counsel of a tender pursuant
to an offer in compromise pursuant to Section 7122 of the Code; or (v) the
execution of a Form 870AD.
5.4 Allocations and Tax Returns.
(a) Allocations. Any allocation of items of income, gain, loss and
deduction between Pre-Closing Periods and Post-Closing Periods required to
be made pursuant to this Article 5 shall be made in a manner consistent
with the rules of the National Association of Insurance Commissioners
("NAIC") and in a manner consistent with the Annual Statements filed by the
Company with the State of Arizona Department of Insurance. Seller shall
cause the Company to prepare a statement as of the Closing as if it were
such an Annual Statement and shall include all schedules necessary for the
preparation of federal income tax returns. Such allocation of all items on
the statement shall be subject to the review of Purchaser and, in the event
that Seller and Purchaser disagree as to the appropriate allocation of any
items between the Pre-Closing Periods and Post-Closing Periods, Seller and
Purchaser will consult a national accounting firm satisfactory to both
Purchaser and Seller in an attempt to resolve such disagreement regarding
the appropriate allocation of such items; provided, however, that the view
of such national accounting firm, obtained as a result of such
consultation, shall not be binding on either party.
(b) Tax Returns.
(i) Consolidated Returns. Seller shall prepare (or cause to be
prepared) and timely file all. Required consolidated Returns
("Consolidated Returns") with respect to the companies for periods
including, or ending on or before, the Closing Date. Payment of Taxes
shown to be due on such Consolidated Returns shall be made in
accordance with Section 5.4 hereof in a manner consistent with past
customs and practice of Seller and the Company. Purchaser shall timely
provide (or cause to be provided) to the Seller all information
(including pro forma Tax Returns, schedules, statements and supporting
documentation) reasonably required in connection with the preparation
and filing of such Consolidated Returns in sufficient time to allow
Seller to timely file such returns.
(ii) Separate Company Returns. Seller shall prepare (or cause to
be prepared) and timely file all Tax Returns with respect to the
Company that are not Consolidated Returns and that are required to be
filed on or before the Closing Date. Purchaser shall prepare (or cause
to be prepared) and timely file all Tax Returns for (a) any Straddle
Period or (b) any Pre- Closing Period, that are required to be filed
after the Closing Date (the "Purchaser Returns") and that are not
Consolidated Returns. Payment of Taxes shown to be due on such Tax
Returns shall be made in accordance with Section 5.2 and 5.3 hereof.
(iii) Tax Accounting Practices. Any Tax Return that includes any
of the Company's assets or activities for any pre-Closing Period shall
be prepared in accordance with past Tax accounting practices used with
respect to the Tax Returns in question (unless the party responsible
for preparing the Tax Return determines that the past practices are no
longer permissible under the Code or other applicable Tax law), and to
the extent any items are not covered by past practices (or in the
event such past practices are no longer permissible under the Code or
other applicable Tax law), in accordance with reasonable Tax
accounting practices selected by the party responsible for preparing
the Tax Return.
(iv) Right to Review Tax Returns. Purchaser shall make available
to Seller the Purchaser Returns and related workpapers for Seller's
review and comment at least 30 business days prior to filing such Tax
Returns. Such Purchaser Returns shall be subject to Sellers' review
and approval, such approval not to be unreasonably withheld, before
the applicable Purchaser Return is filed with any Tax Authority.
5.5 Allocation of Taxes.
(i) Pre-Closing Tax Periods. From the date hereof through the
Closing Date, the Seller shall continue to pay to the appropriate Tax
Authority, any Taxes attributable to the Company in a manner
consistent with past custom and practice. From and after the Closing
Date, Purchaser shall pay (or cause the Company to pay) to the
appropriate Tax Authorities any Taxes due on or after the Closing Date
with respect to a Purchaser Return. Not less than ten days prior to
the due date of any Purchaser Return, Seller shall pay to Purchaser in
immediately available funds the amount of Seller's portion of the
Taxes shown as due on such Purchaser Return as determined pursuant to
Section 5.5(b) hereof. Without duplication, within 30 days of the
timely filing of the last filed Purchaser Return: (i) Seller shall
reimburse Purchaser for any Taxes imposed with respect to the Company
relating to the relevant Pre-Closing Periods that have been paid by
the Purchaser after the Closing; and (ii) Purchaser shall reimburse
Seller for any Taxes of the Company relating to Tax Periods beginning
on or after the Closing Date (including all Taxes allocated to such
period under Section 5.5(b) hereof) that have been paid by the Seller.
(ii) Allocation of Straddle Period Taxes. Purchaser and Seller
shall, to the extent permitted by applicable law and except as
otherwise provided herein, elect with the relevant Tax Authority to
close the Tax period of the Company as of and including the Closing
Date. Subject to the preceding sentence, in the case of Taxes
attributable to the Company that are payable with respect to any
Straddle Period, the portion of any such Taxes that are allocable to
the portion of the Straddle Period ending on the Closing Date shall:
(i) in the case of Taxes that are either (a) based upon or related to
income or receipts or (b) imposed in connection with any sale,
transfer or assignment or any deemed sale, transfer or assignment of
property (real or personal, tangible or intangible) be deemed equal to
the amount that would be payable if the Tax year ended on and included
the Closing Date and (ii) in the case of Taxes (other than those
described in clause (i)) imposed on a periodic basis with respect to
the business or assets of the Company or otherwise measured by the
level of any item, be deemed to be in the amount of such Taxes for the
entire Straddle Period (or, in the case of such Taxes determined on an
arrears basis, the amount of such Taxes for the immediately preceding
Tax period) multiplied by a fraction the numerator of which is the
number of calendar days in the portion of the Straddle period ending
on and including the Closing Date and denominator of which is the
number of calendar days in the entire Straddle Period (the "Part-Year
Fraction"). For purposes of clause (i) of the preceding sentence, any
exemption, deduction, credit or other item that is calculated on an
annual basis shall be allocated to the portion of the Straddle Period
ending on the Closing Date on a pro rata basis determined by
multiplying the total mount of such item allocated to the Straddle
Period multiplied by the Part- Year Fraction. In the case of any Tax
based upon or measured by capital (including net worth or long-term
debt) or intangibles, any amount thereof required to be allocated
under this Section 5.5(b) shall be computed by reference to the level
of such items on the Closing Date.
5.6 Tax Sharing Agreement Terminated; Tax Payments.
Any tax sharing arrangements and agreements between the Company
or its subsidiaries and the other members of the affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) of
which the Company and its subsidiaries are currently members, shall
terminate with respect to each of the Company and its subsidiaries as
of the Closing and will have no further effect for any taxable year
(whether the current year, a future year, or a past year).
5.7 Cooperation and Exchange of Information.
(a) Purchaser and Seller will provide each other with such cooperation
and information as either of them reasonably may request of the other in
connection with the filing of any Tax Return or refund claim, or
participating in or conducting any audit or other proceeding in respect of
Taxes. Such cooperation and information shall include providing copies of
relevant Tax Returns or portion thereof, together with accompanying
schedules and related work papers (to the extent such documents are not
subject to attorney-client or similar privileges), but in no event shall
Purchaser or Seller be required to disclose to the other any information
relating to their respective operations other than information relating to
a liability for Taxes attributable to the operations of the Companies prior
to Closing.
(b) Purchaser and Seller shall make their respective employees
available on a mutually convenient basis to provide explanations of any
documents or information provided hereunder. Purchaser and Seller will
retain all Tax Returns, schedules and work papers and all material records
or other documents relating to Tax matters of the operations of the
Companies for the Tax periods of the Company first ending after the Closing
Date and for all prior Tax periods until the expiration of the statue of
limitations of the Tax periods to which such Tax Returns and other
documents relate (giving effect to any extension, waiver, or mitigation
thereof). After such time, before Purchaser shall dispose of any of such
books and records, at least 90 calendar days prior written notice to such
effect shall be given by Purchaser to Seller and Seller shall be given an
opportunity, at their cost and expense, to remove and retain all or any
part of such books and records as Seller may select. Any information
obtained under this Section 5.7 shall be kept confidential except as may
otherwise be necessary in connection with the filing of Tax Returns or
claims for refund or in conducting an audit or other proceeding or as
otherwise required by law.
5.8 Contests.
(a) Notice. After the Closing, Purchaser and Seller each shall notify
the other in writing within 10 days of the commencement of any Tax audit or
administrative or judicial proceeding affecting the Taxes of any of the
companies, which, if determined adversely to the taxpayer, would be grounds
for indemnification under this Agreement by the other party (or parties, in
the case of Seller) ("Tax Indemnitor"). Such notice shall contain factual
information describing any asserted Tax liability in reasonable detail and
shall include copies of any notice or other document received from any Tax
Authority in respect of any such asserted Tax liability. If either
Purchaser or Seller fail to give the other party prompt notice of an
asserted Tax liability as required under this Agreement, then (i) if the
Tax Indemnitor is precluded by the failure to give prompt notice from
contesting the asserted Tax liability in any administration or judicial
forums, then such party shall not have any obligation to indemnify the
other party for any loss or damage arising out of such asserted Tax
liability, and (ii) if the Tax Indemnitor is not so precluded from
contesting, if such failure to give prompt notice results in a detriment to
the Tax Indemnitor, then any amount which the Tax Indemnitor is otherwise
required to pay pursuant to this Agreement with respect to such liability
shall be reduced by the amount of such detriment.
(b) Control of Contests Involving Consolidated Returns. In the case of
an audit or administrative or judicial proceeding involving any asserted
liability for Taxes ("Tax Controversy") with respect to a Consolidated
Return for a Pre-Closing Period, Seller shall have the right, at its
expense, to control the conduct of such Tax Controversy.
(c) Control of Contests Involving Separate Company Returns. In the
case of a Tax Controversy with respect to a Tax Return relating to a period
including, or ending on or before the Closing Date, Seller shall have the
right, at its expense, to control the conduct of such Tax Controversy. In
the case of a Tax Controversy involving any asserted liability for Taxes
with respect to the Company relating to Straddle Period Taxes other than a
Tax Controversy with respect to a Consolidated Return or a Separate Return,
Purchaser shall have right, at its expense, to control the conduct of such
Tax Controversy; provided, however, that if such Tax Controversy could
result in a material increase in Tax liability for which Seller or any of
its Affiliates may be liable under this Agreement, Seller may participate
in the conduct of such Tax Controversy at its own expense and Purchaser
shall not settle any such audit or proceeding without the such consent of
Seller, which consent shall not be unreasonably withheld.
(d) Post-Closing Periods. Purchaser shall control the defense and
settlement of any Tax Controversy involving any asserted liability for
Taxes imposed with respect to the Company relating to Tax Periods that
begin after the Closing Date.
ARTICLE 6.
ADDITIONAL AGREEMENTS
6.1 Expenses. All expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses whether or not the sale is consummated, provided that the Seller shall
promptly upon payment thereof by Purchaser reimburse the Purchaser for 50% of
the filing fee under the HSR Act. Seller agrees that no expenses, including
without limitation, legal fees, accounting fees, actuarial fees and brokerage
fees shall be incurred by, or allocated to, the Company in connection with this
Agreement and the transactions contemplated hereby.
6.2 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees (i) to use all reasonable efforts to
take, or cause to be taken, all action and (ii) to use all reasonable efforts to
do, or cause to be done, all things necessary, proper or advisable to consummate
and make effective as promptly as practicable the transactions contemplated by
this Agreement and the other Transaction Documents and to cooperate with each
other in connection with the foregoing, (iii) to use all reasonable efforts to
obtain all necessary waivers, consents and approvals from other parties to
material loan agreements, leases and other contracts and to notify each of the
other parties hereto of any request for prepayment with respect thereto;
provided however, all reasonable efforts with respect to obtaining waivers,
consents and approvals under loan agreements does not obligate the parties
hereto to make any prepayment on any such loan, (iv) to use all reasonable
efforts to obtain all necessary consents, approvals and authorizations as are
required to be obtained under any federal, state, local or foreign law or
regulations, including, but not limited to, state insurance laws and the HSR
Act, (v) to defend all lawsuits or other legal proceedings challenging this
Agreement or any other Transaction Document or the consummation of the
transactions contemplated hereby, (vi) to use all reasonable efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby,
and (vii) to use all reasonable efforts to effect all necessary registrations
and filings and submissions of information required or requested by governmental
authorities.
6.3 Notification of Certain Matters. Each party will promptly give written
notice to the other parties upon becoming aware of the occurrence or failure to
occur, or impending or threatened occurrence or failure to occur, of any event
that would cause or constitute, or would be likely to cause or constitute, a
breach of any of its representations, warranties or covenants contained in this
Agreement and will use all reasonable efforts to prevent or promptly remedy the
occurrence or failure. No such notification shall limit or affect the
representations, warranties, covenants or conditions or remedies of the parties
hereunder.
6.4 Access to Information.
(a) Seller shall, and shall cause the Company and its officers,
directors, employees and agents to, afford the officers, employees and
agents of Purchaser complete access at all reasonable times to the
Company's officers, employees, agents, properties, facilities, books,
records and contracts and shall furnish Purchaser all financial, operating
and other data and information as Purchaser through its officers, employees
or agents, may reasonably request. Purchaser will hold and will cause its
respective representatives to hold in strict confidence all documents and
information concerning the Company furnished to Purchaser in connection
with the transactions contemplated by this Agreement (except to the extent
that such information can be shown to have been (i) previously known by
Purchaser (or its respective affiliates) prior to its disclosure to
Purchaser by Seller or the Company, (ii) in the public domain through no
fault of Purchaser or (iii) later lawfully acquired by Purchaser (or its
respective affiliates) from other sources and will not release or disclose
such information to any other person, except in connection with this
Agreement to their respective auditors, actuaries, attorneys, financial
advisors and other consultants or advisors, and to responsible financial
institutions, partnerships and individuals after Purchaser has made
reasonable efforts to cause such financial institutions, partnerships and
individuals to agree to be bound by the provisions of this Section 6.4 as
if the reference to Purchaser herein were to them (it being understood that
such persons shall be informed by Purchaser of the confidential nature of
such information and shall be directed by Purchaser to treat such
information confidentially) and provided that Purchaser and its respective
representatives may provide such documents and information in response to
judicial or administrative process or applicable governmental laws, rules,
regulations, orders or ordinances, but only that portion of the documents
or information which, on the advice of counsel, is legally required to be
furnished, and provided that Purchaser notifies the Company of its
obligation to provide such information prior to such disclosure and fully
cooperates with the Company to protect the confidentiality of such
documents and information under applicable law. If the transactions
contemplated by this Agreement are not consummated, such confidence shall
be maintained except to the extent such information can be shown to have
been (i) previously known by Purchaser, prior to its disclosure to
Purchaser by the Company, (ii) in the public domain through no fault of
Purchaser, or (iii) later lawfully acquired by Purchaser or its affiliates,
from other sources, and, if requested by the Company, Purchaser will
destroy or return to the Company all copies of written information
furnished by the Company to Purchaser or its affiliates, agents,
representatives or advisers.
(b) No investigation pursuant to this Section 6.4 shall affect any
representations or warranties of the parties herein or the conditions to
the obligations of the parties hereto.
(c) Schedules may be prepared and submitted by the Company after the
date of this Agreement; provided however, that any schedule which is not
attached hereto at the time that Purchaser executes this Agreement shall
not be subsequently attached hereto or incorporated herein unless the form
and substance of such schedule is acceptable to Purchaser in its sole
discretion.
(d) Following the Closing, Purchaser will permit reasonable access to
the Company's records and personnel at reasonable times and upon reasonable
notice in order that Seller may have the opportunity to analyze the Final
Balance Sheet prepared by Purchaser as described in Section 10.3.
6.5 Information for Other Filings. Seller represents and warrants that the
information provided and to be provided by Seller or the Company for use in any
document to be filed with any other governmental agency or authority in
connection with the transactions contemplated hereby shall, at the respective
times such documents are filed with the governmental agency or authority and on
the Closing Date be true and correct in all material respects and shall not omit
to state any material fact required to be stated therein or necessary in order
to make such information not false or misleading, and the Seller agrees to so
correct any such information provided by it for use in such documents that shall
have become false or misleading.
6.6 Filings with Governmental Authorities.
(a) Each of the parties hereto shall as promptly as practicable, but
in no event later than ten business days following the execution and
delivery of this Agreement, file with the United States Federal Trade
Commission (the "FTC") and the United States Department of Justice (the
"DOJ") the notification and report form, if any, required for the
transactions contemplated hereby and any supplemental information requested
in connection therewith pursuant to the HSR Act. Purchaser and Seller shall
each be responsible for the payment of 50% HSR Filing Fees associated with
such filings and notices, as provided in Section 6.1 hereof. Any such
notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each of the
parties hereto shall furnish to the other such necessary information and
reasonable assistance as the other may request in connection with its
preparation of any filing or submission which is necessary under the HSR
Act. The parties hereto shall keep each other apprised of the status of any
communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ and, shall comply promptly with any
such inquiry or request. Each of the parties hereto shall use its best
efforts to obtain any clearance required under the HSR Act for the
consummation of the transactions contemplated by this Agreement.
(b) (i) Purchaser shall file a Form A with the Arizona Department of
Insurance within ten business days following the execution of this
Agreement and (ii) each of the parties hereto shall as promptly as
practicable make any other filings under any applicable state insurance or
insurance holding company laws if any, required in connection with the
transactions contemplated hereby.
6.7 Termination of Existing Reinsurance. Seller agrees to terminate, or
cause to be terminated and commuted (as the case may be) at no cost to the
Company and on terms satisfactory to Purchaser, each of the reinsurance
agreements or arrangements listed on Schedules 3.6(c), 3.6(d) and 3.6(e)
immediately prior to the Closing.
6.8 California Business Effective at the Closing, Seller shall cause
Redland to enter into the Millers Agreement in the form of Exhibit A with
respect to the California Business. With respect to the California Business, the
parties agree to reasonably cooperate in an effort to extend the term of the 80%
Private Passenger Automobile Quota Share Reinsurance Contracts listed on
Schedule 3.6(c) (the "Noticed Agreements") such that the term of the Noticed
Agreements will extend to provide reinsurance to Redland for the California
Business up to and including the Closing Date. If the parties are not able to
obtain an extension from the reinsurers under the Noticed Agreements, then
Purchaser shall cause Millers to provide reinsurance to Redland for the
California Business from June 15, 1999 to the Closing Date pursuant to an 80%
Quota Share Reinsurance Treaty (the "Interim Agreement") in form and substance
satisfactory to Purchaser and Seller and on terms consistent with the form of
the Additional State Agreement attached hereto as Exhibit C. If this Agreement
is terminated, Seller and Purchaser agree that the Interim Agreement will be
rescinded and all parties to the Interim Agreement shall be returned to their
respective positions as if the Interim Agreement had never been entered into or
performed.
6.9 Continuing State Agreements. Effective at the Closing, Seller shall,
and shall cause each of the Fronting Companies to enter into a Continuing State
Agreement in the forms of Exhibits B-1 and B-2 hereto pursuant to which the
applicable Fronting Company shall (i) continue to cede to the Company Continuing
Nonstandard Business, (ii) continue to write Continuing Nonstandard Business for
expiring insurance policies and new insurance policies with program and rate
filing characteristics similar to those of such expiring policies on A or A-
rated policies in the applicable state or states listed on Schedule 6.9 as may
be requested by the Company, (iii) file any policy forms or rate filings with
respect to the Nonstandard Business in the name of the Fronting Company as the
Company may request and (iv) appoint any managing general agents, general agents
or independent agents as the Company may request. Seller agrees to cause each
such Fronting Company to reinsure Continuing Nonstandard Business with the
Company without charging a commission or fronting fee to the Company. Each
Continuing State Agreement shall remain in effect for 24 months after the
Closing Date with respect to all Nonstandard Business written by the applicable
Fronting Company during the 24 months following the Closing Date. Purchaser may
elect to designate any affiliate of Purchaser to serve as the reinsurer under
any Continuing State Agreement during all or any portion of the term of such
Continuing State Agreement in lieu of the Company on the same terms as set forth
in the Continuing State Agreement. If the reinsurer designated by Purchaser is
deemed unauthorized by an applicable insurance regulatory authority or if the
balances due the Fronting Company from the reinsurer exceed the amount of the
Fronting Company's policyholders' surplus specified in the Continuing State
Agreement, Purchaser agrees that it shall or shall cause the reinsurer to fund
its share of the Fronting Company's ceded unearned premium and outstanding loss
and loss adjustment expense reserves pursuant to the provisions of the
Continuing State Agreement.
6.10 Additional State Agreements. From and after the Closing, the Purchaser
may cause the Company to begin writing personal automobile physical damage and
personal automobile liability insurance (including Additional Nonstandard
Business) in states where neither the Company nor affiliates of Purchaser are
authorized to write personal automobile physical damage and personal automobile
liability insurance or in states where neither the Company nor affiliates of
Purchaser can write Additional Nonstandard Business on A or A- rated policies.
Upon the request of the Company from time to time on or after the Closing,
Seller shall cause the applicable Fronting Company designated by the Company to:
(i) write Continuing Nonstandard Business on A or A- rated policies as the
Company may request, (ii) file any policy forms or rate filings with respect to
the Nonstandard Business in the name of the Fronting Company as the Company may
request, (iii) appoint any managing general agents, general agents or
independent agents as the Company may request and (iv) enter into an Additional
State Agreement in the form attached hereto as Exhibit C with the Company with
respect to each state so requested by the Company for a period of 24 months
after the Closing (unless earlier terminated by the Company) in order to permit
the Company through fronting arrangements with such Fronting Company to market,
sell, underwrite, and cause the applicable Fronting Company to issue personal
automobile physical damage and personal automobile liability insurance
(including Nonstandard Business) in such jurisdictions. Seller shall cause the
applicable Fronting Company to enter into each Additional State Agreement
requested by the Company without charging a commission or fronting fee to the
Company in excess of two percent of direct written premiums in such state.
Seller shall cause the applicable Fronting Company to enter into such Additional
State Agreement upon request by the Company. Purchaser may elect to designate
any affiliate of Purchaser to serve as the reinsurer under any Additional State
Agreement during all or any portion of the term of such Additional State
Agreement in lieu of the Company on the same terms as set forth in the
Additional State Agreement.
6.11 Assumption Agreement. Effective at the Closing, Seller shall enter
into the Assumption Agreement in the form of Exhibit D hereto.
6.12 Retrocession Agreement. Effective at the Closing, Seller shall cause
Acceptance Casualty to enter into the Retrocession Agreement.
6.13 Employees.
(a) Seller and Purchaser agree that Purchaser shall cause the Company
to continue to employ all employees of the Company on the Closing Date at
will (the "Offered Employees") provided, however, that the Purchaser may
determine not to offer such employment to no more than twelve of the
employees of the Company (collectively, the "Nonoffered Employees"). Prior
to the Closing, Purchaser shall provide Seller with a list of all
Nonoffered Employees. Seller shall use its best efforts to encourage the
Offered Employees to accept the Company's offer to continue their
employment with the Company or accept the offer of employment by an
affiliate of Purchaser. Seller agrees to either (i) employ, (ii) cause an
affiliate of Seller to employ or (iii) discharge under severance
arrangements having no cost or liability to the Company, all Nonoffered
Employees. Seller shall cause the Company to provide any notice to
Nonoffered Employees of the Company that may be required under any federal
or state employment laws, including the Worker Adjustment and Retraining
Notification Act or any similar state law. In providing such notices,
Seller shall not rely on any reduction of any applicable notification
period prescribed by law.
(b) Seller shall be solely responsible for, and shall indemnify and
hold the Company harmless from, any severance claims or any other claims or
causes of action that relate to or arise out of employment with the Company
on or prior to the Closing that are asserted by Nonoffered Employees or
persons who are former employees of the Company as of the Closing Date.
(c) The Company shall be solely responsible for, and shall indemnify
and hold Seller harmless from, any severance claims or any other claims or
causes of action that relate to or arise out of employment with the Company
that are asserted by employees of the Company with respect to actions taken
by the Company after the Closing.
(d) Seller shall remain solely responsible for (i) the satisfaction of
all liabilities and obligations for all wages of Company employees and all
claims for medical, dental, life insurance, health, accident, disability or
other benefits brought by or in respect of Company employees under any
welfare benefit plans applicable to such employees for all periods prior to
the Closing, (ii) all unemployment compensation claims arising prior to the
Closing, (iii) any liability arising from workers' compensation claims of
Company employees, both medical and disability, or other government-
mandated programs which are based on injuries, in each case for any periods
during which such persons were employed by the Company prior to Closing.
(e) Seller agrees to provide any and all continuation coverage to
Nonoffered Employees and their qualified beneficiaries (as defined in
Section 4980B(g)(1) of the Code) that may be required under Section 4980B
of the Code or Part 6 of Title I of ERISA as a result of any events that
occur on or prior to the Closing Date, including the consummation of the
transactions contemplated by this Agreement. Seller agrees to use its best
efforts to provide expeditiously to Purchaser all information that
Purchaser deems necessary to determine whether there has been any failure
to comply with the continuation health care requirements of Section 4980B
of the Code and Part 6 of Title I of ERISA as such requirements have
applied to any group health plan maintained by or for the company which
failure occurred with respect any current or former employee of the Company
or any spouse, former spouse, dependent child, or former dependent child of
any such employee, on or prior to the Closing Date. Seller further agrees
to use its best efforts to provide expeditiously to Purchaser all
information that Purchaser deems necessary to correct any failures to
comply with such continuation health care coverage requirements. Such
information will include the identification of all covered employees (as
defined in Section 4980(b)(f)(7) of the Code) and their qualified
beneficiaries (as defined in Section 4980B(g)(1) of the Code), the
identification of all qualifying events with respect to such covered
employees or qualified beneficiaries (as defined in Section 4980B(f)(3) of
the Code) and information otherwise demonstrating compliance with all of
the continuation health coverage requirements of Section 4980(B) of the
Code and Part 6 of Title I of ERISA. In the event that (i) Purchaser or the
Company modifies the health benefits for employees of the Company after the
Closing, (ii) applicable law requires identical benefits to be provided to
Nonoffered Employees and their qualified beneficiaries and (iii) Seller
would incur a greater cost to provide such benefits to Nonoffered Employees
and their qualified beneficiaries than the cost to provide the health
benefits in effect prior to the Closing , then the Company shall reimburse
the Seller for the amount of the additional cost resulting from the
modification of the health benefits provided to employees of the Company
after the Closing.
6.14 Noncompetition Agreement. Seller agrees that each of Seller, AIH, AIC
and each Fronting Company that is, or may be, a party to an Continuing State
Agreement or an Additional State Agreement shall execute and deliver at the
Closing a Noncompetition Agreement in the form of Exhibit E hereto. Neither
Seller nor its affiliates shall interfere with the Company's favorable
relationship with its Agents and neither the Seller nor its affiliates shall
make disparaging or negative remarks to Agents regarding the Company or
Purchaser.
6.15 Release. Seller agrees (i) to deliver, and cause AIH, AIC, the
Fronting Companies and the directors of the Company to deliver at the Closing
(ii) to use its reasonable efforts to cause the officers of the Company set
forth in Schedule 3.22 to deliver at the Closing, a Release in the form of
Exhibit F hereto.
6.16 Access to Company Data. Subject to reasonable security procedures,
Seller shall provide the Company and INSpire Insurance Solutions, Inc.
("INSpire") access to and use of any and all data recorded on hardware or
software of Seller or its affiliates (other than the Company) used by the
Company to conduct business prior to Closing (the "Company Data ") (i) for a
period of 6 months after the Closing Date and (ii) for an additional period of
18 months thereafter to the extent that Seller or its affiliates continue to
maintain Company Data during such 18 month period. Seller shall maintain Company
Data for use thereof by the Company for a period of 6 months after the Closing
Date and Seller shall cooperate with the Company and INSpire to effect the
orderly transfer of Company Data to any new systems implemented by the Company
or INSpire to conduct the business of the Company. Seller shall deliver such
Company Data to the Company or INSpire in printed copy (if requested by the
Company or INSpire) and in such computer format as the Company or INSpire may
reasonably request. Seller further agrees for a period of 6 months after the
Closing Date and for an additional period of 18 months thereafter to the extent
that Seller or its affiliates continue to maintain such Company Data during such
18 month period, to input, process and output Company Data on any System of
Seller or its affiliates used by the Company to conduct business prior to
Closing.
6.17 Independent Covenants. The covenants contained herein, or incorporated
by reference herein, are independent and separate, and in the event that any
provision contained herein, or incorporated by reference herein, is declared
invalid or illegal, the other provisions hereof shall not be affected or
impaired thereby and shall remain valid and enforceable.
ARTICLE 7.
CONDITIONS
7.1 Conditions to Obligation of Each Party to Effect the Closing. The
obligations of each party to effect the Closing shall be subject to the
fulfillment at or prior to the Closing Date of the condition that no preliminary
or permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority shall be in effect that would make the
acquisition or holding directly or indirectly by Purchaser of the shares of
Common Stock of the Company illegal or otherwise prevent the consummation of the
Closing.
7.2 Additional Conditions to the Obligation of Seller. The obligation of
Seller to effect the Closing is also subject to the fulfillment at or prior to
the Closing Date of the following conditions (unless waived in writing by
Seller):
(a) Purchaser shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed
and complied with by it hereunder on or prior to the Closing Date;
(b) the representations and warranties of Purchaser in this Agreement
shall be true and correct in all material respects when made and at the
Closing Date with the same force and effect as though made at such time,
except as affected by the transactions contemplated hereby;
(c) Purchaser shall have furnished to Seller a certificate, dated the
Closing Date, signed by a responsible officer of Purchaser, to the effect
that all conditions set forth in Section 7.2(a) and (b) have been
satisfied; and
(d) Seller shall have received opinions dated the Closing Date of
Akin, Gump, Strauss, Hauer & Feld L.L.P., counsel to Purchaser, and Angela
Robinson, general counsel to Purchaser, to the effect as set forth in
Exhibit G hereto, which opinions shall be in form satisfactory to counsel
for Seller.
7.3 Additional Conditions to the Obligations of Purchaser. The obligations
of Purchaser to effect the Closing are also subject to the fulfillment at or
prior to the Closing Date of the following conditions (unless waived in writing
by Purchaser):
(a) Seller shall in all material respects have performed each
obligation and agreement and complied with each covenant to be performed
and complied with by it hereunder on or prior to the Closing Date;
(b) The representations and warranties of Seller in this Agreement
shall be true and correct in all material respects when made and at the
Closing Date with the same force and effect as though made at such time,
except as affected by the transactions contemplated hereby;
(c) Seller shall have furnished to Purchaser a certificate, dated the
Closing Date, signed by a responsible officer of Seller, to the effect that
all conditions set forth in Section 7.3(a) and (b) have been satisfied;
(d) If so requested by Purchaser, any members of the Company's Board
of Directors and officers of the Company shall have irrevocably tendered
their resignations effective as of the Closing Date and the Company shall
have accepted such resignations;
(e) The reinsurance agreements listed on Schedule 3.6(c), (d) and (e)
shall have been terminated or commuted to the satisfaction of Purchaser
pursuant to Section 6.7 hereof;
(f) Redland shall have executed and delivered the Millers Agreement
pursuant to Section 6.8 hereof;
(g) The applicable Fronting Company shall have executed and delivered
a Continuing State Agreement pursuant to Section 6.9 hereof;
(h) The applicable Fronting Company shall have executed and delivered
an Additional State Agreement pursuant to Section 6.10 hereof;
(i) Seller shall have executed and delivered the Assumption Agreement
pursuant to Section 6.11 hereof;
(j) Seller shall have caused Acceptance Casualty to have executed and
delivered the Retrocession Agreement pursuant to Section 6.12 hereof;
(k) Seller, AIH, AIC and each Fronting Company shall have executed and
delivered the Noncompetition Agreement pursuant to Section 6.14 hereof;
(l) Seller, AIH, AIC, the Fronting Companies and each director of the
Company shall have executed and delivered to the Company a Release of the
Company pursuant to Section 6.15 hereof and such officers of the Company as
the Company has caused to execute a Release shall have delivered such
Release to the Company;
(m) Purchaser shall have received opinions dated the Closing Date of
Kutak Rock, counsel to Seller and the Company, and J. Michael Gottschalk,
general counsel of Seller and the Company to the effect as set forth in
Exhibit H hereto, which opinions shall be in form satisfactory to counsel
for Purchaser;
(n) No event, circumstance, fact or condition shall have occurred
resulting in a Material Adverse Effect with respect to the Company;
(o) The Company shall be engaged in no line of insurance business or
have liability with respect to any line of insurance business other than
(i) the Nonstandard Business and (ii) the insurance business reinsured by
Seller pursuant to the Assumption Agreement;
(p) All insurance regulatory approvals required with respect to the
sale of the Company and the transactions contemplated hereby shall have
been obtained;
(q) Expiration or early termination of the applicable waiting period
under the HSR Act shall have occurred;
(r) All outstanding loans owed by any affiliate, officer or director
of the Company shall have been repaid in full to the Company and the
releases described in Section 3.21 hereof shall have been delivered to
Purchaser;
(s) Purchaser shall have received a copy of the resolutions of the
Board of Directors of Seller authorizing the execution, delivery and
performance of the Agreement and the consummation of the transactions
contemplated hereby and if approval by Seller's shareholders of the
transactions contemplated by this Agreement is required by law, a copy of
the resolutions or other consent of the shareholders of Seller approving
this Agreement, all certified by the Secretary of Seller on the Closing
Date. Such certificates shall state that the resolutions set forth therein
have not been amended, modified, revoked or rescinded as of the date of
such certificates;
(t) Purchaser shall have received a certificate of the Secretary of
Seller dated the Closing Date, as to the incumbency and signature of the
officers of Seller executing this Agreement and any certificate, agreement
or other documents to be delivered pursuant hereto, together with evidence
of the incumbency of such Secretary;
(u) Purchaser shall have received (i) a copy, certified as of a date
reasonably close to the Closing Date by the Arizona Department of
Insurance, of the Articles of Incorporation, together with all amendments
thereto, of the Company, (ii) a copy, certified as of the Closing Date by
the Secretary or an Assistant Secretary of the Company, of the bylaws of
the Company in effect on the Closing Date, (iii) a certificate or telex
confirmation as of the Closing Date from the Arizona Department of
Insurance as to the existence and good standing of the Company as an
Arizona property and casualty insurance company (iv) a certificate or telex
confirmation as of not more than five days prior to the Closing Date of
existence of Seller as a Nebraska corporation, (v) a certificate or telex
confirmation as of not more than five days prior to the Closing Date from
the office of the Department of Insurance or other appropriate public
official in each state in which the Company is qualified to conduct
business certifying that the Company is in good standing and licensed as a
foreign insurance company in each such state, and (vi) a certificate dated
the Closing Date from the Secretary or Assistant Secretary of the Company
to the effect that the documents delivered pursuant to (i) are true and
correct copies of such documents as on file with the Arizona Department of
Insurance and no action has been taken to amend, modify or repeal such
documents, the same being in full force and effect in such form on the
Closing Date;
(v) Seller shall have delivered to Purchaser all necessary consents,
waivers, authorizations and approvals so that neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby (including the change of control of the Company) will
(i) result in the acceleration or termination of, or the creation in any
party of the right to accelerate, terminate, modify or cancel, any
indenture, contract, lease, sublease, loan agreement, note or other
obligation or liability to which the Company is a party or is bound or to
which any of its their assets are subject, (ii) conflict with, violate or
result in a breach of any provision of the charter documents or bylaws of
the Company, (iii) conflict with or violate any law, rule, regulation,
ordinance, order, writ, injunction, decree, license or permit applicable to
the Company or by which any of its properties or assets is bound or
affected or (iv) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, or result in the creation of any lien, charge or
encumbrance on any of the properties or assets of the Company pursuant to
any of the terms, conditions or provisions of any indenture, contract,
lease, sublease, loan agreement, note, permit, license, franchise,
agreement or other instrument, obligation or liability to which the Company
is a party or by which the Company or any of its assets is bound or
affected;
(w) All schedules to be prepared and provided by Seller shall have
been delivered to Purchaser prior to the Closing in form and substance
acceptable to Purchaser in its sole discretion.
ARTICLE 8.
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of the Boards of Directors of Purchaser
and Seller;
(b) by either of the Boards of Directors of Purchaser or Seller if the
Closing Date shall not have occurred on or before June 30, 1999 unless
extended in accordance with Section 1.4 of this Agreement; provided,
however, that the right to terminate under this Section 8.1(b) shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Closing
Date to occur on or before such date;
(c) if a court of competent jurisdiction or governmental, regulatory
or administrative agency or commission shall have issued an order, decree
or ruling or taken any other action (which order, decree or ruling the
parties hereto shall use all reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement, and such order, decree, ruling
or other action shall have become final and nonappealable;
(d) by Seller in the event of a material breach by Purchaser of a
representation or warranty contained in this Agreement, provided that
Purchaser has received ten business days' written notice of the breach
indicated therein and has failed to effect a cure thereof to the reasonable
satisfaction of Seller prior to the expiration of such period, or of a
covenant contained in this Agreement;
(e) by Purchaser in the event of a material breach by Seller of a
representation or warranty contained in this Agreement, provided that
Seller has received ten business days' written notice of the breach
indicated therein and has failed to effect a cure thereof to the reasonable
satisfaction of Purchaser prior to the expiration of such period, or of a
covenant contained in this Agreement;
(f) by Purchaser if, subsequent to the date hereof and prior to the
Closing Date, there is any material change in the condition (financial or
otherwise), business, operations, liquidity, property, assets, liabilities,
obligations or prospects of the Company.
(g) by the Seller or the Company pursuant to the terms of Section 4.6.
The date on which this Agreement is terminated pursuant to any of
the foregoing subsections of this Section 8.1 is herein referred to as
the "Termination Date."
8.2 Effect of Termination. Except as set forth in Sections 4.6, 6.4(a),
this Section 8.2 and Article 9, upon the termination of this Agreement pursuant
to Section 8.1, this Agreement shall forthwith become null and void, except that
nothing herein shall relieve any party from liability for any breach of this
Agreement prior to such termination.
8.3 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Waiver. At any time prior to the Closing Date, any term, provision or
condition of this Agreement may be waived in writing (or the time for
performance of any of the obligations or other acts of the parties hereto may be
extended) by the party that is entitled to the benefits thereof.
ARTICLE 9.
INDEMNIFICATION
9.1 Indemnification of the Purchaser and the Company.
(a) Seller shall indemnify and hold harmless Purchaser and the Company
and their respective officers, directors, employees, shareholders,
policyholders, agents and representatives from and against any loss,
liability, claim, damage or expense, (including reasonable legal fees and
expenses and costs of investigating and defending against lawsuits, claims,
actions or other pending or threatened litigation (collectively referred to
in this Article 9 as the "Costs") incurred by such indemnified party
arising from (i) any breach of any representation or warranty of the Seller
and/or the Company contained in this Agreement or in any document or
certificate delivered pursuant hereto and (ii) any breach of any covenant
of the Seller and/or Company contained in this Agreement or in any document
or Agreement delivered pursuant hereto.
(b) Seller shall also indemnify and hold harmless each party
indemnified under Section 9.1(a) hereof from and against all Costs incurred
by such indemnified party. arising from or related to:
(i) the following civil actions and/or the Company insurance
policies underlying any of them:
(A) Phoenix Indemnity v. North et al, Pima County (Arizona)
District Court Cause No. C-312982. Insured: Johnny North; Claim
No.: 2605902; Date of Loss: 10/21/94;
(B) Mora v. Vallejo and Phoenix Indemnity, Yuma County
(Arizona) District Court Cause No. SC97V00047. Insured: Moises
Vallejo; Claim No.: 2617338, Cross referenced with Claim No.:
2641792; Date of Loss: 3/7/96;
(C) Phoenix Indemnity v. Trujillo, Bernalillo County (New
Mexico) District Court Cause No. CV98-04992. Insured: Angela
Lopez; Claim No.: 2626946; Date of Loss: 7/4/97;
(ii) any other bad faith, extra-contractural claims or claims in
excess of policy limits known to the Company or any Fronting Company
prior to the Closing;
(iii) liability with respect to any line of insurance business
written or reinsured by the Company prior to the Closing other than
the Nonstandard Business (including the California Business and the
Texas Business); and
(iv) any liability of the Company under the Pooling Agreement.
9.2 Indemnification by Purchaser. Purchaser shall indemnify and hold
harmless Seller, its officers, directors, employees and controlling persons from
Costs arising from (i) any breach of any representation or warranty of the
Purchaser contained in this Agreement or in any document or certificate
delivered pursuant hereto and (ii) any breach of any covenant of the purchaser
contained in this Agreement or in any document or agreement delivered pursuant
hereto.
9.3 Procedures for Resolution and Payment of Claims for Indemnification.
(a) If a party entitled to be indemnified under this Article 9 (the
"Indemnitee") shall incur any Costs or determine that it is likely to incur
any Costs, including without limitation claims by third parties, and
believes that it is entitled to be indemnified against such Costs by
another party hereunder (the "Indemnitor"), such Indemnitee shall deliver
to the Indemnitor a certificate (an "Indemnity Certificate") signed by the
Indemnitee which Indemnity Certificate shall:
(i) state that the Indemnitee has paid or properly accrued Costs,
or anticipates that it will incur liability for Costs for which such
Indemnitee is entitled to indemnification pursuant to this Agreement;
and
(ii) specify in reasonable detail each individual item of Cost
included in the amount so stated, the date such item was paid or
properly accrued, the basis for any anticipated liability and the
nature of the misrepresentation, breach of warranty or breach of
covenant to which each such item is related and the computation of the
amount to which such Indemnitee claims to be entitled hereunder.
(b) In case the Indemnitor shall object to the indemnification of an
Indemnitee in respect of any claim or claims specified in any Indemnity
Certificate, the Indemnitor shall within 30 days after receipt by the
Indemnitor of such Indemnity Certificate deliver to the Indemnitee a
written notice to such effect and the Indemnitor and the Indemnitee shall,
within the 30-day period beginning on the date of receipt by the Indemnitee
of such written objection, attempt in good faith to agree upon the rights
of the respective parties with respect to each of such claims to which the
Indemnitor shall have so objected. If the Indemnitee and the Indemnitor
shall succeed in reaching agreement on their respective rights with respect
to any of such claims, the Indemnitee and the Indemnitor shall promptly
prepare and sign a memorandum setting forth such agreement. Should
Indemnitee and the Indemnitor be unable to agree as to any particular item
or items or amount or amounts, then Indemnitee and the Indemnitor shall
arbitrate such dispute pursuant to Section 10.5 hereof.
(c) Claims for Costs specified in any Indemnity Certificate to which
an Indemnitor shall not object in writing, claims for Costs covered by a
memorandum of agreement of the nature described in paragraph (b) hereof,
claims for Costs the validity and amount of which have been the subject of
arbitration as described in paragraph (b) hereof and claims for Costs the
validity and amount of which shall have been the subject of a final
judicial determination are hereinafter referred to, collectively, as
"Agreed Claims."
(d) Promptly after the assertion by any third party of any claim
against any Indemnitee that, in the judgment of such Indemnitee, may result
in the incurrence by such Indemnitee of Costs for which such Indemnitee
would be entitled to indemnification pursuant to this Agreement, such
Indemnitee shall deliver to the Indemnitor a written notice describing in
reasonable detail such claim and such Indemnitor may, at its option, assume
the defense of the Indemnitee against such claim (including the employment
of counsel, who shall be satisfactory to such Indemnitee, and the payment
of expenses). Any Indemnitee shall have the right to employ separate
counsel in any such action or claim and to participate in the defense
thereto, but the fees and expenses of such counsel shall not be at the
expense of the Indemnitor unless (i) the Indemnitor shall have failed,
within a reasonable time after having been notified by the Indemnitee of
the existence of such claim as provided in the preceding sentence, to
assume the defense of such claim, (ii) the employment of such counsel has
been specifically authorized by the Indemnitor, or (iii) the named parties
to any such action (including any impleaded parties) include both such
Indemnitee and the Indemnitor and such Indemnitee shall have been advised
in writing by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available
to Indemnitor. No Indemnitor shall be liable to indemnify any Indemnitee
for any settlement of any such action or claim effected without the consent
of the Indemnitor but if settled with the written consent of the
Indemnitor, or if there be a final judgment for the plaintiff in any such
action, the Indemnitor shall jointly and severally indemnify and hold
harmless each Indemnitee from and against any loss or liability by reason
of such settlement of judgment. If an Indemnitor assumes the defense of an
Indemnitee against a claim asserted hereunder, the Indemnitee shall give
the Indemnitor access to the Company's books and records as necessary to
conduct such defense and cooperate in such defense.
(e) In the event that an Indemnitee subsequently recovers any or all
of the amount of an Agreed Claim from a party other than the Indemnitor,
the Indemnitee shall reimburse immediately to the Indemnitor, in cash, an
amount equal to the amount of such previously paid Agreed Claim which shall
have been recovered.
9.4 Minimum Costs. Notwithstanding anything herein to the contrary, an
Indemnitee shall be entitled to indemnification hereunder only if, and to the
extent that, the aggregate amount of Costs incurred by such Indemnitee shall
exceed $500,000; provided however, that such minimum amounts shall not apply to
any Costs arising as a result of (i) the breach of the representations set forth
in Sections 2.2, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.8, 3.18, 3.23, or 3.26 (with
respect to certificates of authority), (ii) any breach of the obligations of the
Seller pursuant to Section 4.6, Article 5, Sections 6.1, 6.7, 6.8, 6.9, 6.10,
6.11, 6.12, 6.14, 6.15 or 6.16, (iii) indemnification under Section 9.1(b)
hereof, (iv) any payment obligation of a party under Section 10.3(d) or (v) any
breach of this Agreement knowingly made by the Company or an Indemnitor.
ARTICLE 10.
ADJUSTMENTS AND DISPUTE RESOLUTION
10.1 Definitions Used to Determine Purchase Price. For purposes of this
Agreement, the following capitalized terms shall have the meanings set forth
below:
(a) Final Balance Sheet. The SAP balance sheet of the Company which
shall reflect the termination of the Pooling Agreement, the termination of
reinsurance agreements pursuant to Section 6.7 and the acquisition by the
Company of the Nonstandard Business as of the Final Balance Sheet Date and
which shall be established based on the Preliminary Balance Sheet and
subject to adjustment pursuant to the process and procedures set forth in
Section 10.3 below.
(b) Final Balance Sheet Date. The date shall be (i) the Closing Date
if the Closing Date occurs on the last day of the calendar month or (ii) if
the Closing Date does not occur on the last day of a calendar month, the
last day of the calendar month immediately preceding the calendar month in
which the Closing Date occurs.
(c) Final Net Equity Deficit Amount. In the case in which the Final
Net Equity is less than the Preliminary Net Equity, the amount equal to the
difference between the Final Net Equity and the Preliminary Net Equity.
(d) Final Net Equity Surplus Amount. In the case in which the Final
Net Equity is more than the Preliminary Net Equity, the amount equal to the
difference between the Final Net Equity and the Preliminary Net Equity.
(e) Final Net Equity. The Net Equity determined from the Final Balance
Sheet.
(f) IBNR and Bulk Claims. Expected payments for losses relating to
insured events that have occurred but have not been reported to the Company
as of the Financial Statement date, including losses that have been
reported to the Company but have not yet been entered to the claims system
or bulk provisions.
(g) Net Equity. The value, determined in accordance with SAP, of
Company assets less the value of the Company liabilities.
(h) Preliminary Balance Sheet. The SAP pro forma balance sheet of the
Company at March 31, 1999, and which sets forth a Net Equity equal to or
greater than the Preliminary Net Equity and which gives pro forma effect to
the termination of the Pooling Agreement, the termination and commutation
of reinsurance agreements pursuant to Section 6.7 and the acquisition by
the Company of the Nonstandard Business as of such date.
(i) Preliminary Net Equity. A value, determined in accordance with
SAP, of Net Equity at Closing, equal to $14,700,000.
(j) Preliminary Purchase Price. The cash amount of Twenty-five Million
Dollars ($25,000,000) (i) less the amount, if any, that Net Equity shown on
the Preliminary Balance Sheet is less than the Preliminary Net Equity and
(ii) reduced by the amount of any dividends paid by the Company to the
Seller or the proceeds of any Shares redeemed from the Seller by the
Company from January 1, 1999 until Closing. The Preliminary Purchase Price
includes the Noncompete Fee payable pursuant to the Noncompetition
Agreement.
(k) Post-Closing Adjustment Period. The period commencing on the
Closing Date and expiring upon the delivery of the Final Balance Sheet from
Purchaser to Seller.
(l) Post-Closing Payment Date. The later of (i) the date which is the
thirtieth day following the expiration of the Post-Closing Adjustment
Period, or (ii) in the event the Audit Firm is retained pursuant to Section
10.3(b) or the Actuaries are retained pursuant to Section 10.3(c), the date
which is the tenth day after the later of the delivery to Purchaser and
Seller of the report of the Audit Firm, if any, or the Closing IBNR and
Bulk Claims as determined by the Actuaries, if any.
(m) Purchase Price. The cash amount equal to the Preliminary Purchase
Price (i) plus the Final Net Equity Surplus Amount, if any, or (ii) minus
the Final Net Equity Deficit Amount, if any.
10.2 General Description of Intent. The Purchase Price payable pursuant to
this Agreement shall be the aggregate purchase price payable for the Shares to
be transferred to Purchaser after giving effect to the termination and
commutation of the Pooling Agreement, the termination of reinsurance agreements
pursuant to Section 6.7 and the acquisition by the Company of the Nonstandard
Business to be transferred to the Company pursuant to this Agreement. It is the
intent of the parties that as of the Closing Date, if the Closing Date is the
last day of a calendar month, or, if it is not, then as of the last day of the
calendar month immediately preceding the calendar month in which the Closing
Date occurs, the balance sheet of the Company for the period ending on such date
shows a Net Equity equal to or greater than the Preliminary Net Equity. On the
Closing Date, Purchaser shall pay the Preliminary Purchase Price. The Final
Balance Sheet shall be determined subsequently, in accordance with the process
and procedures described in Section 10.3, and any adjustment required as a
result of such determination shall be made pursuant to Section 10.3.
10.3 Final Balance Sheet.
(a) Establishment of Final Balance Sheet. In accordance with the
process and procedures described in this Section 10.3, Purchaser and Seller
shall work with the Company and Audit Firm during the Post-Closing
Adjustment Period to review, verify and, if necessary, adjust those items
set forth on the Preliminary Balance Sheet for the purpose of establishing
the Final Balance Sheet which shall be used finally to determine the
Purchase Price. The Final Balance Sheet shall be prepared in accordance
with SAP consistently applied and using the same accounting policies and
procedures applied in the preparation of the Audited Financial Statements
(as defined in Section 3.5) and shall give effect to the termination of the
Pooling Agreement, the termination and commutation of reinsurance
agreements pursuant to Section 6.7 and the acquisition by the Company of
the Nonstandard Business.
(b) Adjustments To Preliminary Balance Sheet Involving Matters Other
Than IBNR and Bulk Claims. Seller shall deliver the Preliminary Balance
Sheet prepared in accordance with SAP applied on a basis consistent with
prior periods and giving pro forma effect to the acquisition of the
Nonstandard Business as of the date of the Preliminary Balance Sheet.
Purchaser shall prepare the Final Balance Sheet in accordance with SAP and
using the same accounting procedures applied in the preparation of the
Audited Financial Statements and giving effect to the acquisition by the
Company of the Nonstandard Business within 90 days after the Closing Date
or as soon thereafter as is reasonably practicable. Seller will be deemed
to have accepted such Final Balance Sheet and to have waived forever any
right to contest it unless it notifies Purchaser within 30 days after
delivery of the Final Balance Sheet to Seller that Seller contests such
Final Balance Sheet and the reasons therefore. Seller will have access to
Purchaser records and personnel in order to analyze such final Balance
Sheet as set forth in Section 6.4. If Seller contests the Final Balance
Sheet, Purchaser and Seller will enter into good faith negotiations to
resolve the dispute for a period of 30 days after the Seller's notice to
Purchaser that it is contesting the Final Balance Sheet. If after such
period of good faith negotiations Purchaser and Seller are not able to
resolve the dispute, Purchaser and Seller shall jointly retain Deloitte and
Touche LLP (the "Audit Firm") to conduct an audit of the Final Balance
Sheet and prepare a report setting forth any adjustments Audit Firm deems
necessary in order for the Final Balance Sheet to reflect the standards of
preparation set forth in this Section 10.3(b). The adjustments to the Final
Balance Sheet set forth in the report of the Audit Firm as a result of its
audit shall be final and binding on the parties (other than reserves for
IBNR and Bulk Claims set forth on the Final Balance Sheet which shall be
resolved as provided in Section 10.3(c)). The costs for Audit Firm's
services shall be borne equally by Seller and Purchaser.
(c) Adjustments to Preliminary Balance Sheet Involving IBNR and Bulk
Claims. Purchaser and Seller also shall review and evaluate the IBNR and
Bulk Claims reserves set forth in the Final Balance Sheet. For the purpose
of establishing the reserves for Closing IBNR and Bulk Claims, (the
"Reserve Amount") any adjustments must be mutually agreed to by Purchaser
and Seller within 10 business days after the expiration of the Post-Closing
Adjustment Period. If Purchaser and Seller do not agree to the Reserve
Amount for Closing IBNR and Bulk Claims set forth on the Final Balance
Sheet prepared by Audit Firm, as provided in Section 10.3(b), or if the
only account balance in the Final Balance Sheet in dispute between
Purchaser and Seller is the Closing IBNR and Bulk Claims, then the matter
shall be submitted immediately to two nationally recognized actuarial firms
(the "Actuaries"), one of which will be PriceWaterhouse Coopers LLP and the
other will be chosen by mutual agreement of the Purchaser and Seller, for
their review and determination. The review by the Actuaries shall be
limited to a determination of the adequacy of the Reserve Amount set aside
to pay the IBNR and Bulk Claims as of the Final Balance Sheet Date (the
"Closing IBNR and Bulk Claims"). In their review and determination, the
Actuaries shall make a final point estimate, using the historical Company
methodology described in Section 3.5(f) of the appropriate Reserve Amount
for the then-unpaid Closing IBNR and Bulk Claims, and such estimate shall
be completed and delivered to Purchaser and Seller within 25 days after the
expiration of the Post-Closing Adjustment period, or as soon thereafter as
is practicable. If the Reserve Amount as determined by each Actuary is
within 10% of the Reserve Amount as determined by the other Actuary, the
Reserve Amount for the Closing IBNR and Bulk Claims under this Agreement
will be the average of such Reserve Amounts. If the Reserve Amount as
determined by one Actuary is not within 10% of the Reserve Amount as
determined by the other Actuary, the Purchaser and Seller may mutually
agree to a specific Reserve Amount, or can mutually select another two
mutually recognized Actuaries, and both of such Actuaries shall determine
the Reserve Amount as described in the immediately preceding sentences and
the Post Closing Adjustment Date will then be postponed for a period of 60
days. If the Reserve Amounts as determined by the second two Actuaries are
not within 10% of each other, such two Actuaries shall mutually select a
third nationally recognized actuarial firm (other than any firm previously
engaged by Purchaser or Seller under this Section 10.3(c)) and such Actuary
shall determine the Reserve Amount and such determination shall be final,
binding and conclusive upon Purchaser and Seller. The Reserve Amount
determined in accordance with this Section 10.3(c) shall be appropriately
incorporated into the Final Balance Sheet. (d) Post-Closing Payment Date.
In the event that the Purchase Price exceeds the Preliminary Purchase
Price, on or before the Post-Closing Payment Date, Purchaser shall pay
Seller cash in the amount equal to the Purchase Price minus the Preliminary
Purchase Price. In the event that the Preliminary Purchase Price exceeds
the Purchase Price, on or before the Post-Closing Payment Date, Seller
shall return and pay to Purchaser cash in the amount equal to the
Preliminary Purchase Price minus the Purchase Price.
10.4 Manner of Payment; Interest. All payments made pursuant to Section
10.3(d) shall be paid via wire transfer or other form of electronic transmission
of immediately available funds, or by cashier's check or in certified funds, and
shall be paid pursuant to payment instructions delivered to the party who owes
the applicable funds from the party to whom such funds are owed. In the event
that any payment is required to be made by a party on the Post-Closing Payment
Date, the amount of such payment shall bear interest at the rate of 8% per annum
from the Closing Date until paid by the applicable party.
10.5 Alternative Dispute Resolution.
(a) Any disputes regarding the preparation of the Preliminary Balance
Sheet, the Final Balance Sheet, the Adjustment to the Preliminary Balance
Sheet involving matters other than IBNR and Bulk Claims and adjustment to
the Preliminary Balance Sheet involving IBNR and Bulk Claims shall be
resolved in the manner described in Section 10.3 hereof.
(b) The parties agree that they will attempt to settle any claim or
controversy arising out of this Agreement other than disputes referenced in
Section 10.5(a) hereof through consultation and negotiation in good faith
and in a spirit of mutual cooperation. If those attempts fail, then such
dispute will be mediated by a mutually acceptable mediator to be chosen by
the parties within 15 business days after written notice by one of the
parties demanding mediation. Neither party may unreasonably withhold
consent to the selection of the mediator and the parties agree to share the
cost of the mediation equally. By mutual agreement, however, the parties
may postpone mediation until the parties have each completed some specified
but limited discovery regarding the dispute. The parties may also mutually
agree to replace mediation with some other form of alternative dispute
resolution ("ADR") such as neutral fact-finding or mini-trial. If any
dispute cannot be resolved by the parties through negotiation, mediation or
another form of ADR other than arbitration within 45 days of the date of
the initial demand for ADR by one of the parties, then the dispute shall be
determined by binding arbitration applying the laws of the State of Texas.
Any arbitration pursuant to this Agreement shall be conducted before the
American Arbitration Association in accordance with its arbitration rules.
The arbitration shall be final and binding upon all the parties. The
arbitrators award shall not be required to include factual findings or
legal conclusions under the doctrine of laches, waiver, or estoppel to
adversely affect the rights of either party.
(c) Any mediation or other form of ADR shall take place in Fort Worth
or Dallas, Texas. Any dispute which involves, in whole or in part, whether
by claim, counterclaim or defense, one or more of the following issues is
excepted from the preceding requirements regarding mediation or other form
of ADR and, if not otherwise resolved, may be resolved by litigation: (i)
any claim by Purchaser for declaratory or equitable relief under this
Agreement or under any of the other Transaction Documents, including but
not limited to claims for specific performance, rescission, reformation or
injunctive relief; and (ii) any claim or controversy arising out of, in
connection with or relating to indemnity under Section 9 herein.
ARTICLE 11.
GENERAL PROVISIONS
11.1 Public Statements. So long as this Agreement is in effect, neither
Seller nor Purchaser shall, or shall permit any of its subsidiaries to, issue or
cause the publication of any press release or other announcement with respect to
this Agreement without consulting with and obtaining the consent of the other
parties; provided, however, that a copy of any proposed press release or
announcement shall be provided in advance to the other party but the consent of
such party shall not be required where such release or announcement is required
by applicable law.
11.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by Fed Ex or other
nationally recognized overnight delivery service or facsimile transmission (if
also sent by personal delivery, certified mail or overnight delivery service) to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
(a) if to Purchaser:
Millers American Group, Inc.
300 Burnett Street
Fort Worth, Texas 76102
Attn: David N. Thompson
Facsimile No. 817-348-3480
with a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201-4675
Attn: Terry M. Schpok, P.C.
Facsimile No. 214-969-4343
(b) if to Seller:
Acceptance Insurance Company
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102-1616
Attn: Kenneth L. Coon, Chairman
J. Michael Gottschalk, General Counsel
Facsimile No. 402-345-9190
with a copy to:
Kutak Rock
The Omaha Building
1650 Farnam Street
Omaha, Nebraska 68102-2186
Attn: Joe E. Armstrong, Esq.
Facsimile No. 402-346-1148
Notice so given shall (in the case of notice so given by mail) be deemed to
be given and received in the fourth calendar day after posting, in the case
of notice so given by overnight delivery service on the date of actual
delivery and, in the case of notice so given by facsimile transmissions or
personal delivery, on the date of actual transmission or, as the case may
be, personal delivery.
11.3 Representations and Warranties. The representations and warranties of
the parties hereto shall survive the Closing and remain in full force and effect
on and after the Closing Date for the period set forth below notwithstanding any
investigations which may have been made by any of the parties prior thereto. The
representations and warranties contained in Sections 2.2, 3.1, 3.2, 3.3, 3.4,
3.5 and 3.6 shall survive the Closing forever. The representations and
warranties contained in Sections 3.8 and 3.20 shall survive the Closing for a
period of three months following the expiration of the applicable statute of
limitations. All other representations and warranties contained in this
Agreement shall survive the Closing for a period of 18 months.
11.4 Miscellaneous. This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement and supersedes all other
prior agreements and undertakings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof; is not intended to
confer upon any other person any rights or remedies hereunder, shall not be
assigned; and shall be governed in all respects, including validity,
interpretation and effect, by the internal laws of the State of Texas without
giving effect, to the principles of conflict of laws thereof. This Agreement may
be executed in one or more counterparts which together shall constitute a single
agreement. If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable under any applicable law, then such contravention or
invalidity shall not invalidate the entire Agreement. Such provision shall be
deemed to be modified to the extent necessary to render it legal, valid and
enforceable, and if no such modification shall render it legal, valid and
enforceable, then this Agreement shall be construed as if not containing the
provision held to be invalid, and the rights and obligations of the parties
shall be construed and enforced accordingly.
11.5 Financial Statements. Unless otherwise specifically required in this
Agreement, all financial statements and information shall be prepared in
accordance with SAP.
[Signature Page Follows]
<PAGE>
PURCHASE AGREEMENT SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first written above.
MILLERS AMERICAN GROUP, INC.
By: /S/ JOY J. KELLER
-------------------------------------
Name: Joy J. Keller
-------------------------------------
Title: Executive Vice President and CFO
-------------------------------------
ACCEPTANCE INSURANCE COMPANY
By: /S/ KENNETH L. COON
-------------------------------------
Name: Kenneth L. Coon
-------------------------------------
Title: Chairman
-------------------------------------
PHOENIX INDEMNITY INSURANCE COMPANY
By: /S/ GEORGIA M. MACE
-------------------------------------
Name: Georgia M. Mace
-------------------------------------
Title: Treasurer
-------------------------------------
<PAGE>
LIST OF SCHEDULES
Schedule 3.4 Required Consents
Schedule 3.6(a) Reinsured Business
Schedule 3.6(b) Ceded Business
Schedule 3.6(c) Provisional Notices of Cancellation
Schedule 3.6(d) Other Reinsurance To Be Terminated
Schedule 3.6(e) Commuted Agreements
Schedule 3.6(f) New and Surviving Agreements
Schedule 3.9 Real Property
Schedule 3.10 Personal Property
Schedule 3.11 Oral and Written Contracts
Schedule 3.12 Legal Proceedings
Schedule 3.14 Patents, Trademarks, Franchises, etc.
Schedule 3.18 Corporate Insurance
Schedule 3.19 Employees
Schedule 3.20 Employee Benefit Plans
Schedule 3.21 Transactions with Related Parties
Schedule 3.22 Directors, Officers and Bank Accounts
Schedule 3.26 Permits and Licenses
Schedule 6.9 Continuing State Agreements
<PAGE>
LIST OF EXHIBITS
Exhibit A Form of Millers Agreement
Exhibit B-1 Form of Continuing State Agreement
(Auto Liability and P.D.)
Exhibit B-2 Form of Continuing State Agreement (P.D. only)
Exhibit C Form of Additional State Agreement
Exhibit D Form of Assumption Agreement
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Release
Exhibit G Form of Purchaser's Counsel Legal Opinion
Exhibit H Form of Seller's Counsel Legal Opinion
<PAGE>
Exhibit A
PORTFOLIO
REINSURANCE AGREEMENT
by and between
REDLAND INSURANCE COMPANY
(hereinafter "Ceding Company")
and
THE MILLERS
INSURANCE COMPANY
(hereinafter "Reinsurer")
Effective Date: ________________
<PAGE>
PORTFOLIO REINSURANCE AGREEMENT
THIS PORTFOLIO REINSURANCE AGREEMENT (the "Agreement") is made and entered into
by and among Redland Insurance Company, an insurance company organized under the
laws of the State of Iowa (hereinafter "Ceding Company"), and The Millers
Insurance Company, an insurance company organized under the laws of the State of
Texas (hereinafter "Reinsurer").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Purchase Agreement dated May 10, 1999 (the
"Purchase Agreement"), Acceptance Insurance Company agreed to (i) sell to
Millers American Group, Inc. all of the issued and outstanding shares of
capital stock of Phoenix Indemnity Insurance Company ("Phoenix"), an
affiliate of Ceding Company herein, and (ii) transfer to Reinsurer all
private passenger nonstandard automobile insurance (including liability and
no-fault, uninsured and underinsured motorists, medical payments coverage,
guest passenger liability, and automobile physical damage coverage, as
applicable) previously written by Acceptance Insurance Company and its
affiliated insurance company, Redland Insurance Company, Ceding Company
herein.
B. Ceding Company presently writes the private passenger nonstandard
automobile insurance referred to above in the state of California, and is
responsible for servicing the policies relating thereto as well as the
administration and payment of claims arising under such policies.
C. Ceding Company maintains reserves for losses (including incurred but not
reported losses), loss adjustment expenses, and unearned premiums relating
to the policies currently in force.
D. Ceding Company wishes to sell its California private passenger nonstandard
automobile insurance program to Reinsurer simultaneously with the sale by
Acceptance Insurance Company of all of the issued and outstanding shares of
capital stock of Phoenix to Millers American Group, Inc.
E. The sale, transfer, and assignment of the California private passenger
nonstandard automobile insurance program to Reinsurer shall occur
immediately prior to the sale of the issued and outstanding shares of
capital stock of Phoenix to Millers American Group, Inc.
STATEMENT OF AGREEMENTS
NOW, THEREFORE, in consideration of the premises and mutual promises and
covenants hereinafter contained, and intending to be legally bound, the parties
hereto agree as follows:
Article I
Reinsurance of Business
As of the Effective Date, Ceding Company shall cede to Reinsurer, and Reinsurer
agrees to accept from Ceding Company, a quota share reinsurance of Ceding
Company's original liability as respects losses and loss adjustment expenses
under all insurance policies classified by Ceding Company as private passenger
nonstandard automobile insurance with respect to which reserves are carried on
Ceding Company's books as of _____________ and such types of policies written or
renewed by Ceding Company at any time with an effective date prior to the
Effective Date (the "Reinsured Policies"), except as excluded in Article III
hereof, subject to the limitations set forth in this Agreement.
Article II
Term and Closing
2.1 Reinsurance under this Agreement becomes effective
_________________________ (the "Effective Date") and shall remain
continuously in force until terminated as hereinafter provided.
2.2 Reinsurance under this Agreement shall be in force only if and to the
extent obligations exist under the Reinsured Policies. Reinsurer's
liability hereunder will terminate simultaneously with Ceding Company's
termination of liability under the Reinsured Policies.
2.3 The closing of the transactions contemplated by this Agreement shall take
place simultaneously with the closing contemplated in Section 1.4 of the
Purchase Agreement, or at such other place and time as the parties hereto
shall agree upon in writing, subject to any required state insurance
regulatory approval.
Article III
Liability of Reinsurer
3.1 The liability of Reinsurer shall attach simultaneously with the liability
of Ceding Company in respect to all the Reinsured Policies. The
reinsurance provided in this Agreement shall not create any right or legal
relationship between Reinsurer and the policyholders of Ceding Company or
any other claimant under a Reinsured Policy.
3.2 The reinsurance provided by this Agreement specifically excludes all
liability for extra-contractual and bad faith damages arising from actions
taken or omitted by Ceding Company prior to the Effective Date. For the
purposes of this Agreement, the term "extra-contractual and bad faith
damages" means any damages, claims, demands, actions, losses, costs,
expenses, and liabilities (including, but not limited to, attorneys' fees
and disbursements and court fees) in excess of the limit of Ceding
Company's original policy, but otherwise within the terms of the original
policy, or any punitive, exemplary, or consequential damages, other than
loss in excess of policy limits, if such excess loss is incurred because
of Ceding Company's failure to settle within the policy limit or by reason
of its alleged or actual negligence, bad faith, or unfair practice in
handling or rejecting a claim, offer, or settlement, or in the preparation
of the defense or the trial of any action by or against its insured, or in
the preparation or prosecution of an appeal consequent to such action.
Article IV
Amounts Reinsured
Ceding Company shall cede to Reinsurer, and Reinsurer shall accept, a 100% quota
share interest in all the Reinsured Policies. Ceding Company agrees to maintain
its current quota share reinsurance coverage in force until June 15, 1999, and
shall not elect to terminate such coverage on any basis other than a run-off
basis.
Article V
Consideration
Consideration for the reinsurance of the Reinsured Policies and performance of
the services as provided for in this Agreement shall be as follows:
5.1 RESERVES. For and in consideration of Reinsurer reinsuring all liability
of Ceding Company under the Reinsured Policies, subject to the provisions
of Article XIV hereof, Ceding Company agrees to release and transfer to
Reinsurer the following:
(a) All statutory reserves for gross losses and loss adjustment expenses
determined as of _____________ attributable to the Reinsured Policies.
These reserves shall include, but not be limited to, reserves for
incurred but not reported claims but shall exclude reserves for
extra-contractual and bad faith damages which are not reinsured
hereunder. Such loss reserves as of _____________ will be established
according to prudent reserving customs and practices as traditionally
applied by Ceding Company. To the extent that the transfer of such
funds occurs more than 30 days after the Effective Date, the
transferred amount shall reflect the reserve amounts as of the
Effective Date plus 5% interest, prorated by the number of days after
such 30th day, on such reserves and any and all salvage and
subrogation recovered, less (i) amounts paid on claims occurring on or
prior to the Effective Date, and (ii) associated allocated loss
adjustment expenses.
(b) All unearned premium reserves determined as of the Effective Date
attributable to the Reinsured Policies less (i) the ceding commission
pursuant to Section 5.2 and (ii) premium taxes.
5.2 CEDING COMMISSION. Reinsurer shall pay to Ceding Company a ceding
commission equal to the commission paid Arrowhead General Insurance
Agency, San Diego, California on the unearned premium as of the Effective
Date for the Reinsured Policies.
5.3 PAYMENT OF FUNDS. Subject to the terms and conditions of this Agreement,
Ceding Company shall, on the date or dates the reinsurance transactions
contemplated by this Agreement are closed, cause the payment due to
Reinsurer to be delivered by a bank wire transfer, in immediately
available funds, at the time when due, to the bank(s) and account(s)
designated in writing prior thereto by Reinsurer.
Article VI
Premium Taxes
Reinsurer shall reimburse Ceding Company for all premium taxes paid by Ceding
Company with respect to premiums written on or after the Effective Date as
provided for in the 100% Quota Share Reinsurance Agreement described in Section
7.5.
Article VII
Administration by Reinsurer
Commencing on the Effective Date, Reinsurer or its designee shall, subject to
the obligations of Ceding Company as set forth in Articles X and XII of this
Agreement, be responsible for servicing all the Reinsured Policies and
administering the business associated with the Reinsured Policies, including but
not limited to, the following:
7.1 PREMIUM NOTICES AND COLLECTION. Reinsurer shall prepare and mail premium
notices to the holders of the Reinsured Policies and collect and retain
premiums.
7.2 CLAIMS. Reinsurer shall receive, adjust, and make payment of all claims
under the Reinsured Policies, regardless of when such claims were incurred
or reported, and specifically, without limiting the foregoing, shall assume
responsibility for administration with respect to all claims pending under
the Reinsured Policies and unpaid by Ceding Company as of the Effective
Date.
7.3 RESERVES. Reinsurer shall post, on the closing of the reinsurance
transactions contemplated hereunder, and maintain during the term of this
Agreement, such reserves for the Reinsured Policies on its books and
records to the extent required by the applicable state insurance laws and
in accordance with prudent customs and practices of the insurance industry.
7.4 PREMIUM TAXES. Reinsurer shall assume liability for all premium taxes as
provided for in Article VI hereof with respect to premiums due and paid to
Reinsurer under the Reinsured Policies, whether paid to Reinsurer directly
or remitted to Reinsurer by Ceding Company.
7.5 MAINTENANCE OF BUSINESS. Ceding Company shall provide a fronting
arrangement for Reinsurer (i) to allow for the renewal of all Reinsured
Policies, and (ii) to allow for the production of new business by or on
behalf of the Reinsurer in the state of California. The fronting
arrangement for the new and existing business shall be for a period of two
(2) years commencing on the Effective Date. The terms and conditions of the
fronting arrangement shall be set forth in a 100% Quota Share Reinsurance
Agreement, the form of which is attached to the Purchase Agreement as
EXHIBIT C except that no ceding commission or other compensation shall be
paid to Ceding Company under such agreement. The production of the new and
existing business shall be subject to (i) Reinsurer's normal underwriting
rules, and its manuals of rules and rates, and (ii) such other conditions
as may be determined by Reinsurer subject, in the case of assigned risk
policies, to the rules, rates, terms, and conditions required by applicable
involuntary market and insurance regulatory authorities.
7.6 POLICYHOLDER CORRESPONDENCE. Reinsurer shall process and prepare
appropriate responses to all policyholder correspondence from prospective
and existing policyholders.
7.7 REGULATORY ACTION. Reinsurer shall forward to Ceding Company any state
insurance department correspondence.
The obligation of Reinsurer to perform the above administrative services
pursuant to this Agreement shall commence on ______________, 1999, without
regard to the extent to which reinsurance is effective pursuant to this
Agreement, and shall not be deemed to increase or diminish the extent of its
reinsurance obligations as set forth in this Agreement.
Article VIII
Claims
Reinsurer shall adjudicate claims under the Reinsured Policies in good faith and
with the same degree of care and skill that it applies to its own insurance
policies. Ceding Company agrees to be bound by Reinsurer's disposition of claims
made under any Reinsured Policy. Reinsurer shall have the right to institute,
prosecute, or maintain any legal proceedings on behalf of Ceding Company with
respect to any claim arising under a Reinsured Policy. When requested by the
Ceding Company, the Reinsurer shall permit the Ceding Company, at the expense of
the Ceding Company, to be associated with the Reinsurer in defense or conflict
of any claim, loss, or legal proceeding. In the event that either party hereto
is made party to any legal proceeding arising out of or in connection with the
Reinsured Policies, the parties will cooperate with each other to defend,
settle, or compromise or otherwise resolve the litigation consistent with this
Article and with the intent of this Agreement.
Article IX
Bad Faith Actions, etc.
Reinsurer shall indemnify and hold Ceding Company and the officers, directors,
and employees of Ceding Company harmless from any and all "extra-contractual and
bad faith damages," claims, demands, actions, losses, costs, expenses, and
liabilities (including, but not limited to, attorneys' fees and disbursements
and court fees) arising from a bad faith action, unfair claims practice, or
tortious breach of contract committed or alleged to have been committed by
Reinsurer in the course of performing its administration obligations with
respect to the Reinsured Policies hereunder and actions committed or alleged to
have been committed by Ceding Company after the Effective Date but prior to
________________, 1999 to the extent that such actions were taken in accordance
with requirements implemented at Reinsurer's request pursuant to Section 10.2
hereof.
Article X
Undertakings of Ceding Company
To facilitate Reinsurer's performance of its obligations under this Agreement,
Ceding Company agrees to undertake the following:
10.1 TRANSFER OF RECORDS, FILES, ETC. Ceding Company agrees that it will
furnish all assistance to Reinsurer which may be reasonably necessary for
the orderly reinsurance, administration, and transfer of the Reinsured
Policies, including the delivery of all records and all right, title, and
interest in such records relating to the Reinsured Policies, including,
but not limited to, application forms, marketing materials, premium and
claims history, reinsurance records, and records relating to the Reinsured
Policies, and such records and files shall remain the property of Ceding
Company until one year after all policies constituting the Reinsured
Business shall have expired, either by cancellation or otherwise, and all
outstanding losses and loss adjustment expenses have been settled, at
which time all such files and records shall become the property of
Reinsurer. In the event such records are needed by Ceding Company, copies
of such records will be made available to Reinsurer. Reinsurer shall
reimburse Ceding Company for all reasonable expenses incurred by Ceding
Company for the transportation of any records relating to the Reinsured
Policies which are presently located in its offices. It is acknowledged
that significant time is necessary for Reinsurer to transpose the records
from Ceding Company forms to Reinsurer forms and to manually transfer the
records and papers from the home office and computer systems of Ceding
Company to the offices and computer systems of Reinsurer; therefore,
Ceding Company agrees to make available to Reinsurer the space and the
reasonable assistance of its employees at its home office now handling
this business for as long as may be reasonably necessary to effect the
transfer and transportation of such records, papers, and forms.
10.2 COOPERATION WITH REINSURER. Ceding Company and Reinsurer shall consult
after the Effective Date and prior to _______________, 1999 with respect
to underwriting and claims rules and operations, and Ceding Company will
act in accordance with any reasonable request of Reinsurer for
modifications of such rules and operations.
10.3 COLLECTION OF PREMIUMS. Ceding Company agrees that all premiums coming
into its hands on and after the Effective Date pertaining to the Reinsured
Policies shall be promptly remitted to Reinsurer.
10.4 REMITTANCE PROCESSING AND OTHER SERVICES. Ceding Company shall perform
remittance processing and other services reasonably requested by Reinsurer
for a fee to be mutually agreed upon.
Article XI
Banking Services
Reinsurer shall perform for Ceding Company certain banking functions for the
bank accounts of Ceding Company used to administer the Reinsured Policies. These
functions shall include:
(a) depositing premium and other receipts;
(b) issuing checks or drafts for payment of claims, premium refunds, or
other payments as required under this Agreement;
(c) performing bank reconciliations; and
(d) performing daily operational activities and account maintenance and
contacts with respective banks.
Article XII
Costs of Administration
Reinsurer shall not charge Ceding Company a fee for its administrative services
hereunder except as provided for herein. In the event that any state insurance
regulatory authority affirmatively rules that certain policies which were to
have been reinsured hereunder cannot be reinsured hereunder or that the date as
of which the reserves with respect to any Reinsured Policies are determined
shall be later than __________________, Ceding Company shall pay to Reinsurer a
mutually agreed upon fee for the administration of such policies performed
during the period commencing on ___________________ and ending (i) in the case
of Reinsured Policies for which reinsurance hereunder is approved by such
regulatory authority, on the date as of which the reserves with respect to such
Reinsured Policies are determined, and (ii) with respect to policies which
cannot be reinsured hereunder, on the date on which administrative services are
no longer performed hereunder by Reinsurer with respect to such policies.
Article XIII
Reports
13.1 Reinsurer shall, as long as the Agreement remains in effect, provide to
Ceding Company within thirty (30) days after the end of each calendar
year, within twenty (20) days after the end of each calendar month other
than December, and within thirty (30) days after the termination of this
Agreement, a statement which shall include, in addition to such other
information as Ceding Company may reasonably request:
(a) outstanding losses, including incurred but not reported;
(b) paid losses and loss adjustment expenses;
(c) unearned premium; and
(d) written premium.
13.2 To the extent required by applicable law, Reinsurer shall provide Ceding
Company with a periodic accounting within sixty (60) days of the end of
each calendar quarter. To the extent there are any amounts due and owing
between the parties, the periodic accounting will be followed by an
appropriate cash settlement within thirty (30) days thereof. The
requirements in this Section shall not be conditional upon the performance
of any other agreement or any other person not a party hereto.
Article XIV
State Insurance Regulatory Matters
14.1 If required by any applicable law, this Agreement shall be submitted by
the parties to the respective state insurance regulatory authorities for
any required approval pursuant to the provisions of the applicable
insurance statutes. The reinsurance provisions of this Agreement shall not
become effective as to the Reinsured Policies insuring residents of a
particular state unless and until the necessary regulatory approvals, if
any, have been obtained for such state.
14.2 To the extent required by applicable law, Reinsurer, if not licensed to
transact insurance or reinsurance in an applicable state, agrees to submit
to a court of jurisdiction within the United States, agrees to comply with
all requirements necessary to give such court jurisdiction over Reinsurer,
has designated an agent upon whom service of process may be effected, and
agrees to abide by the final decision of such court or an appellate court
to which a trial court decision may be appealed.
Article XV
Audits
Ceding Company shall, until two (2) years after the termination of this
Agreement, have the right to examine, and Reinsurer shall make available to
Ceding Company for examination at Reinsurer's premises or any other place where
Reinsurer's duties hereunder are being performed, at reasonable hours, all
claims, books, records, documents, papers, and other information pertaining to
the Reinsured Policies or the performance of Reinsurer's obligations hereunder.
Article XVI
Termination
16.1 This Agreement shall terminate automatically upon the termination of Ceding
Company's liabilities and other obligations under each and every Reinsured
Policy. In the event of such termination, Reinsurer shall continue to
perform such services provided for in this Agreement, and to provide such
reports and other information as Ceding Company may reasonably require to
conclude all remaining administrative requirements hereunder with respect
to the Reinsured Policies. In such event, the applicable provisions of this
Agreement shall continue to apply.
16.2 Ceding Company may terminate this Agreement upon the occurrence of any of
the following events:
(a) issuance by a court of competent jurisdiction of an order to liquidate
or dissolve, or a similar order to wind up the business of, Reinsurer;
(b) failure of Reinsurer to maintain the appropriate license or
certification where required by state law; provided, however, that
such failure will not be cause for termination if Reinsurer arranges
through other means, satisfactory to Ceding Company, to remove or
otherwise satisfy the legal or regulatory impediments to its
performance.
16.3 This Agreement may be terminated at any time upon mutual agreement of the
parties.
16.4 Upon termination of this Agreement, Reinsurer shall provide Ceding Company
with a final accounting and settlement of all matters relating to the
Reinsured Policies.
Article XVII
Errors and Omissions
Ceding Company and Reinsurer shall not be prejudiced, in any way, by any
omission through clerical error, accident or oversight to cede to Reinsurer any
business rightly falling under the terms of this Agreement, or by erroneous
cancellation, either partial or total, of any cession, or by omission to report,
or by erroneously reporting any losses, or by any other error or omission. Any
such error or omission shall be corrected immediately upon discovery.
Article XVIII
Insolvency
18.1 In the event of the insolvency of Ceding Company, reinsurance under this
Agreement shall be payable by Reinsurer on the basis of the liability of
the insolvent company under the Reinsured Policies reinsured, without
diminution because of such insolvency, to the insolvent company or to its
domiciliary liquidator or receiver.
18.2 It is agreed, however, that the liquidator or receiver or statutory
successor of the insolvent company will give written notice to Reinsurer
of the pendency of any claim against the insolvent company on a Reinsured
Policy within a reasonable time after such claim is filed in the
insolvency proceeding and that during the pendency of such claim Reinsurer
may investigate such claim and interpose, at its own expense, in the
proceeding where such claim is to be adjudicated any defense or defenses
which it may deem available to the insolvent company or its liquidator or
receiver or statutory successor. The expense thus incurred by Reinsurer
will be chargeable, subject to court approval, against the insolvent
company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to the insolvent
company solely as a result of the defense undertaken by Reinsurer.
18.3 Should the insolvent company be placed into liquidation or should a
receiver be appointed, Reinsurer will, to the extent permitted by law, be
entitled to deduct from any sums which may be or may become due to the
insolvent company under this Agreement, any sums which are due to
Reinsurer by the insolvent company under this Agreement and which are
payable at a fixed or stated date, as well as any other sums due Reinsurer
which are permitted to be offset under applicable law.
18.4 It is further agreed that, in the event of the insolvency of Ceding
Company, the reinsurance obligations under this Agreement shall be payable
directly by Reinsurer to Ceding Company or to its domiciliary, liquidator
or receiver, except (a) as provided by applicable law, (b) where this
Agreement specifically provides another payee of such reinsurance in the
event of the insolvency of Ceding Company, and/or (c) where Reinsurer,
with the consent of the direct insured, has assumed the policy obligations
of Ceding Company as direct obligations of Reinsurer to the payee under
the Reinsured Policies and in substitution for the obligation of Ceding
Company to such payee.
Article XIX
Arbitration
19.1 Any dispute arising with respect to this Agreement, whether arising before
or after termination hereof, which is not settled by mutual agreement of
the parties, shall be submitted to arbitration in accordance with this
Article.
19.2 Within twenty (20) days from receipt of notice from one party that an
arbitrator has been appointed, the other party shall also name an
arbitrator. The two arbitrators shall choose a third arbitrator and shall
forthwith notify the contracting parties of such choice. If the two
arbitrators cannot agree upon the third arbitrator, each arbitrator shall
nominate three persons of whom the other shall reject two. The third
arbitrator shall then be chosen by drawing lots. If a party fails to
choose an arbitrator within twenty (20) days after receiving the written
request of the other party to do so, the latter shall choose both
arbitrators, who shall choose the third arbitrator. Each arbitrator shall
be a present or former property and casualty insurance company officer who
is otherwise not directly or indirectly affiliated with any party to this
Agreement.
19.3 The party requesting arbitration (the "Petitioner") shall submits brief to
the arbitrators within thirty (30) days after notice of the selection of
the third arbitrator. Upon receipt of the Petitioner's brief, the other
party (the "Respondent") shall have thirty (30) days to file a reply
brief. On receipt of the Respondent's brief, the Petitioner shall have
twenty (20) days to file its rebuttal brief. Respondent shall have twenty
(20) days from the receipt of Petitioner's rebuttal brief to file its
rebuttal brief. The arbitrators may extend the time for filing of a brief
at the request of either party.
19.4 The arbitrators shall consider this Agreement as an honorable engagement
rather than merely as a legal obligation, and shall be relieved of all
judicial formalities, and shall make their award with a view to effecting
the intent of the parties. The decision of the arbitrators shall be final
and binding upon the parties to this Agreement. Judgment may be entered
upon the final decision of the arbitrators in any court having
jurisdiction. Each party shall bear the expenses of its own arbitrator and
shall jointly and equally bear the expenses of the third arbitrator and of
the arbitration. Any such arbitration shall be conducted pursuant to the
rules of the American Arbitration Association and shall take place in the
City of Fort Worth, Texas, unless some other location is mutually agreed
upon by the parties.
Article XX
Representations and Warranties
20.1 REPRESENTATIONS AND WARRANTIES OF CEDING COMPANY. Ceding Company represents
and warrants to Reinsurer as follows.
(a) Organization, Standing, Etc. It is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and is authorized to conduct its business as a property
and casualty insurance company in those states where, for purposes of
this Agreement, such authorization is required.
(b) Authority for Agreement. It has the corporate power and authority to
execute and deliver this Agreement and to carry out its obligations
hereunder. This Agreement and the transactions contemplated herein
have been duly authorized and approved by its board of directors and,
where necessary, its shareholder. This Agreement has been duly
executed and delivered by the duly authorized officers of Ceding
Company and constitutes the valid and legally binding obligation of
Ceding Company.
(c) Title to Assets. It has title to the assets to be acquired by
Reinsurer pursuant to Section 5.4 hereof free and clear of any lien or
encumbrance, and is authorized to convey title to such assets to
Reinsurer.
(d) Compliance with Other Instruments and Laws. The execution, delivery,
and performance of this Agreement will not result in any violation of
or be in conflict with or constitute a default under any agreement to
which it is a party or any judgment, decree, or order which names it
or by which any of the assets described in Section 5.4 are bound.
(e) Consents, Etc. Except as set forth in Schedule 20.1 hereof, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental or judicial authority or
any third party is required in connection with the valid execution,
delivery and performance of this Agreement by Ceding Company.
20.2 REPRESENTATIONS AND WARRANTIES OF REINSURER. Reinsurer represents and
warrants to Ceding Company as follows.
(a) Organization, Standing, Etc. Reinsurer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas and is authorized to conduct its business as a property
and casualty insurance company in those states where, for purposes of
this Agreement, such authorization is required.
(b) Authority for Agreement. Reinsurer has the corporate power and
authority to execute and deliver this Agreement and to carry out its
obligation hereunder. This Agreement and the transactions contemplated
herein have been duly authorized and approved by Reinsurer's board of
directors and, where necessary, its shareholder. This Agreement has
been duly executed and delivered by the duly authorized officers of
Reinsurer and constitutes the valid and legally binding obligation of
Reinsurer.
(c) Compliance with Other Instruments and Laws. The execution, delivery
and performance of this Agreement will not result in any violation of
or be in conflict with or constitute a default under any agreement to
which Reinsurer is a party or any judgment, decree or order which
names Reinsurer.
(d) Consents, Etc. Except as set forth in Schedule 20.2 hereof, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental or judicial authority or
any third party is required in connection with the valid execution,
delivery and performance of this Agreement by Reinsurer.
Article XXI
General Provisions
21.1 SEVERABILITY. If any term, provision, covenant, or condition of this
Agreement is held by a court of competent jurisdiction to be invalid,
void, or unenforceable, the remainder of the provisions shall remain in
full force and effect and shall in no way be affected, impaired, or
invalidated.
21.2 AMENDMENTS. This Agreement may not be modified, changed, or amended in any
respect unless agreed upon in writing and signed by the duly authorized
representatives of the respective parties hereto.
21.3 ASSIGNMENT. This Agreement shall not be assigned by either party without
the prior written consent of the other party, except Reinsurer may without
such consent assign to or contract with any of its affiliates to reinsure
or administer any of the Reinsured Policies reinsured or administered
pursuant to this Agreement; provided, however, that any necessary approval
from regulatory authorities is obtained.
21.4 SOLE BENEFIT. This Agreement is for the sole benefit of the parties hereto
and in no event shall this Agreement be construed to be for the benefit of
any third party, except to the limited extent that Reinsurer shall hereby
acquire liabilities to policyholders of the Reinsured Policies.
21.5 ENTIRE AGREEMENT. This Agreement and the schedules and exhibits attached
hereto define the full extent of the legally enforceable undertakings of
the parties hereto, and no related promise or representation, written or
oral, which is not set forth explicitly herein, or in such schedules or
exhibits, is intended by either party to be legally binding. With the
exception of the Purchase Agreement, this Agreement supersedes any and all
oral and written agreements entered into prior to the Effective Date
between the parties hereto with respect to the subject matter hereof.
21.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
21.7 EXPENSES. Each party hereto shall bear its own costs and expenses
attributable to the negotiation, execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby.
21.8 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given when delivered or mailed by
first class mail, postage prepaid, addressed as follows:
(a) If to Redland, to:
Redland Insurance Company
Professional Tower, Suite 500
105 South 17th Street
Omaha, Nebraska 68102
Attention: Kenneth C. Coon
with a copy to:
Kutak Rock
The Omaha Building
1650 Farnam Street
Omaha, Nebraska 68102-2186
Attention: Joe E. Armstrong, Esq.
(b) If to The Millers Insurance Company, to:
The Millers Insurance Company
300 Burnett Street
Fort Worth, Texas 76102
Attention: David N. Thompson
with a copy to:
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 Pacific Avenue
Dallas, Texas 75201-4675
Attention: Terry M. Schpok, P.C.
21.9 COUNTERPARTS. This Agreement may be executed in several counterparts each
of which is an original but all of which shall constitute one instrument.
21.10 OFFSETS. Any offsets Reinsurer may take against amounts owed to Ceding
Company, or any offsets Ceding Company may take against amounts owed to
Reinsurer, shall be limited to amounts due and owing under this Agreement
between Ceding Company and Reinsurer.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, Ceding Company and Reinsurer have by their respective
officers executed this Agreement to be effective the ______ day of
_______________, 1999.
CEDING COMPANY
Redland Insurance Company
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
REINSURER
The Millers Insurance Company
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT B-1
QUOTA SHARE
AGREEMENT OF REINSURANCE
ADDENDUM NUMBER ONE (1)
This Addendum attaches to and forms a part of a certain Agreement of
Reinsurance between Phoenix Indemnity Insurance Company (hereinafter called the
"Reinsurer") and Acceptance Insurance Company (hereinafter called the "Company")
originally effective January 1, 1994.
As of the Effective Date, Company and Reinsurer agree as follows:
ARTICLE I - SCOPE OF AGREEMENT shall be deleted entirety and
replaced with the following:
As a condition precedent to the Reinsurer's obligations under this
Agreement, the Company shall cede to the Reinsurer 100% quota share of the
Net Written Premium and the liability for the Reinsured Business described
in this Agreement retained by the Company after all other facultative and
treaty reinsurance, and the Reinsurer shall accept such business as
reinsurance from the Company. The Company is to bear no business or
insurance risk whatsoever (save the risk of Reinsurer's insolvency).
ARTICLE III - LIABILITY OF THE REINSURER - the first paragraph of
Article III shall be deleted in its entirety and replaced with the
following:
The Reinsurer shall pay to the Company, with respect to each risk
and policy under Non-Standard Private Passenger Automobile Business, 100%
of the amount of net loss of the Company ("Reinsured Business").
ARTICLE IV - DEFINITIONS shall be amended as follows:
1. Subparagraph (a) is deleted and replaced with the following:
(a) NON-STANDARD PRIVATE PASSENGER AUTOMOBILE BUSINESS
This term shall mean non-standard private passenger automobile
business written, in-force, or renewed by the Company on risks
located in the states of Arizona, Georgia, Minnesota and
Wisconsin and serviced by the Reinsurer.
2. Subparagraphs (b), (f), and (g) are deleted in their
entirety and without replacement.
ARTICLE VII - REPORTS AND REMITTANCES will be deleted in its
entirety and replaced with the following:
MONTHLY
The Reinsurer shall report to the Company, within 45 days
after the close of each month:
(1) The reinsurance premium written for the month by line
of insurance, and
(2) The Company's portion of claims, losses, and adjustment
expense paid and outstanding during the month by line
of insurance and year of claim or loss.
QUARTERLY
On a quarterly basis, the Company shall calculate and invoice
the Reinsurer for premium taxes due. The amount due shall be
remitted by the Reinsurer within 30 days of receipt of the
invoice.
ARTICLE VIII - MANAGEMENT OF CLAIMS AND LOSSES shall be deleted in
its entirety and replaced with the following:
The Reinsurer shall investigate and settle or defend all claims and
losses and perform such other functions as it may determine proper for
servicing the Reinsured Business. When requested by the Company, the
Reinsurer shall permit the Company, at the expense of the Company, to be
associated with the Reinsurer in the defense or control of any claim,
loss, or legal proceeding which involves or is likely to involve the
Company. All settlements and payments of claims or losses by the
Reinsurer, whether under strict policy conditions or by way of compromise,
shall be binding on the Company, subject to the terms of this Agreement.
Company shall deliver to Reinsurer on the Effective Date of this Addendum
all files and records, in whatever form, pertaining to the Non-standard
Private Passenger Automobile Business including, but not limited to,
accounting, claims, underwriting, and legal. Such files and records shall
belong to and remain the property of Company until one (1) year after all
policies constituting the Reinsured Business shall have expired either by
cancellation or otherwise, and all outstanding losses and Adjustment
Expenses have been settled, at which time such files and records shall
become the property of and owned by Reinsurer.
ARTICLE IX - RECOVERIES - the first paragraph shall be deleted in
its entirety.
ARTICLE XI -- SPECIAL ACCEPTANCES shall be deleted in its entirety.
ARTICLE XII - RESERVES AND TAXES - the following paragraph will be
added:
Company shall pay premium taxes on premiums received prior to the
Effective Date of this Addendum.
ARTICLE XIII - OFFSET shall be deleted in its entirety.
ARTICLE XIV - INSPECTION OF RECORDS shall be deleted in its entirety
and replaced with the following:
The Reinsurer shall allow the Company to inspect, at reasonable
times, the records of the Reinsurer relevant to the business reinsured
under this Agreement, including Reinsurer files concerning claims, losses,
or legal proceedings which involve or are likely to involve the Company.
ARTICLE XVII - COMMENCEMENT AND TERMINATION is deleted in it
entirety and replaced with the following:
1. The effective date of this Agreement is at 12:01 a.m. central
standard time, on September 1, 1999 (the "Effective Date").
This Addendum and Agreement shall remain continuously in force
until September 17, 2001, or until such earlier date if
terminated according to the provisions set forth herein.
2. This Agreement may be terminated under any of the
following circumstances:
(a) Immediately by mutual consent of the Parties to
this Agreement.
(b) Immediately, upon written notice by Company, if
Reinsurer is found to be insolvent by any state
insurance department or court of competent jurisdiction,
or is placed in supervision, conservation,
rehabilitation, or liquidation, or has a receiver or
supervisor appointed.
(c) By Reinsurer, upon thirty (30) days written notice, if
Company is found to be insolvent by any state insurance
department or court of competent jurisdiction, or is
placed in supervision, conservation, rehabilitation or
liquidation, or has a receiver or supervisor appointed.
(d) By Company, immediately and automatically without prior
written notice should the Department of Insurance with
jurisdiction over the Reinsured Business require
cancellation or disallow credit for this reinsurance.
(e) By either Party, upon thirty (30) days written notice to
the other Party if the non-terminating Party:
(1) commits an intentionally wrongful or
fraudulent act material to the Agreement;
(2) materially breaches a provision of the Agreement
and fails to cure such breach within sixty (60)
days after written notice thereof; or
(3) is in a financially impaired condition under the
applicable law of any state having jurisdiction
over any of the Reinsured Business.
(f) By Reinsurer, upon 30 days written notice, if Reinsurer
or an affiliate becomes licensed to write the Reinsured
Business under this Agreement in Arizona, Georgia,
Minnesota or Wisconsin.
3. When this Agreement terminates for any reason, reinsurance
hereunder shall continue to apply to the Reinsured Business in
force at the time and date of termination until expiration or
cancellation of such business. It is understood that any policies
constituting the Reinsured Business with effective dates prior to
the termination date but issued after the termination date are
covered under this Agreement. Additionally, the reinsurance
hereunder shall continue to apply as to policies constituting the
Reinsured Business which must be issued or renewed, as a matter
of state law.
4. Upon termination of this Agreement, Reinsurer shall not be
relieved of or released from any obligation created by or under
this Agreement in relation to payment, expenses, reports,
accounting or handling, which relate to the Reinsured Business.
The Parties covenant and agree that they will cooperate with each
other in the handling of all such run-off insurance business
until all policies constituting the Reinsured Business shall have
expired either by cancellation or under the terms of such
policies and all outstanding losses and loss adjustment expenses
have been settled. Upon termination of this Agreement, the
Reinsurer shall service the run-off of the Reinsured Business,
and its duties for such run-off shall include, but not be limited
to, handling all claims, and handling and servicing all policies
constituting the Reinsured Business through their natural
expiration, together with any policy renewals, required to be
made by provisions of applicable law, whether or not the
effective date of such renewal is subsequent to the effective
date of termination of this Agreement. All costs and expenses
associated with the handling of such run-off business following
the termination of this Agreement shall be borne solely by
Reinsurer. Reinsurer may appoint a successor to handle the
run-off, subject to Company's approval (which shall not be
unreasonably withheld), at no cost to Company.
5. Except as otherwise provided in this Agreement, in the event this
Agreement is terminated, Reinsurer shall remain liable to and
shall, immediately upon request, reimburse Company for any
assessment made upon Company by a state insurance guaranty
association pursuant to the applicable provisions of a state's
insurance laws, which applies to the Reinsured Business to the
effective date of termination. Company shall likewise remain
liable for, and account to Reinsurer for any recovery of such
assessment under a state insurance guaranty association, or any
credit allowed against its premium tax pursuant to applicable
law.
6. The title and ownership of all undelivered policy forms, books,
and supplies containing Company's name related to the Reinsured
Business is in Company. Upon termination, these materials shall
be delivered immediately by Reinsurer to Company, at Company's
expense, without compelling Company to resort to any legal
proceedings to secure the property of Company.
7. Upon termination of this Agreement, Reinsurer shall provide
Company with a final accounting and settlement of all matters
relating to the Reinsured Business.
<PAGE>
ARTICLE XIX - EXCESS OF ORIGINAL POLICY LIMITS AND EXTRA
CONTRACTUAL OBLIGATIONS:
(A) EXCESS OF ORIGINAL POLICY LIMITS - the following sentence will be
added at the end of the first paragraph:
provided, however, that Loss under this provision shall not
include any loss which otherwise would be subject to this Article
XIX (a) if (i) prior to the Effective Date the Company knew or
reasonably should have known that it had breached the covenant of
good faith and fair dealing, or had taken other action rendering
it liable for payment in excess of a policy limit, with respect
to the matter giving rise to the loss, or (ii) such loss is
specifically referred to in any other agreements between the
parties or their affiliates and is established therein an
obligation of Company or its affiliates.
(B) EXTRA CONTRACTUAL OBLIGATIONS - the following sentence will be
added at the end of the first paragraph:
provided, however, that Loss under this provision shall not
include any liabilities which otherwise would be subject to this
Article XIX (b) if (i) prior to the Effective Date the Company
knew or reasonably should have known that it had breached the
covenant of good faith and fair dealing, or had taken other
action rendering it liable for payment in excess of a policy
limit, with respect to the matter giving rise to the
extra-contractual obligation, or (ii) such extra-contractual
obligation is specifically referred to in any other agreements
between the parties or their affiliates and is established
therein an obligation of Company or its affiliates.
ARTICLE XX - AGENTS BROKERS AND MANAGING GENERAL AGENTS shall be
added:
A. As of the Effective Date, the Reinsurer shall assume the obligation
to pay any broker, agent or managing general agent appointed by the Company
for the solicitation, sale, marketing or production of the Reinsured
Business, including payment of commissions, service fee and other
compensation that may be due such brokers, agents or managing general
agents according to the written agreements between Company and such
brokers, agents or managing general agents and as approved by Reinsurer.
Company shall appoint any agent, broker or managing general agent
reasonably requested by Reinsurer, and Reinsurer shall not accept or
process any Reinsured Business from any person not appointed by Company.
Company shall use such standards, rules and instructions for producing the
Reinsured Business as required by Reinsurer.
B. As of the Effective Date, the Reinsurer agrees to pay for the
license or appointment fees imposed on insurance companies to license or
appoint agents, brokers or managing general agents that are authorized by
Reinsurer to solicit, sell, market or produce the policies constituting the
Reinsured Business, provided that Reinsurer shall have the right to require
Company to terminate the right of an agent, broker or managing general
agent to produce such policies.
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed
in duplicate this ____ day of _________, 1999.
ACCEPTANCE INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
PHOENIX INDEMNITY INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
As of the Effective Date, The Millers Insurance Company shall guaranty the
performance of the financial obligations of Reinsurer under this Quota Share
Reinsurance Agreement, subject to any defenses available to Reinsurer under the
Agreement.
THE MILLERS INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
Date Date
------------------------------- -------------------------------
<PAGE>
EXHIBIT B-2
QUOTA SHARE
AGREEMENT OF REINSURANCE
ADDENDUM NUMBER ONE (1)
This Addendum attaches to and forms a part of a certain Agreement of
Reinsurance between Phoenix Indemnity Insurance Company (hereinafter called the
"Reinsurer") and Acceptance Insurance Company (hereinafter called the "Company")
originally effective June 1, 1994.
As of the Effective Date, Company and Reinsurer agree as follows:
ARTICLE I - SCOPE OF AGREEMENT shall be deleted entirety and
replaced with the following:
As a condition precedent to the Reinsurer's obligations under this
Agreement, the Company shall cede to the Reinsurer 100% quota share of the
Net Written Premium and the liability for the Reinsured Business described
in this Agreement retained by the Company after all other facultative and
treaty reinsurance, and the Reinsurer shall accept such business as
reinsurance from the Company. The Company is to bear no business or
insurance risk whatsoever (save the risk of Reinsurer's insolvency).
ARTICLE III - LIABILITY OF THE REINSURER - the first paragraph of
Article III shall be deleted in its entirety and replaced with the
following:
The Reinsurer shall pay to the Company, with respect to each risk
and policy under Non-Standard Private Passenger Automobile Business, 100%
of the amount of net loss of the Company ("Reinsured Business").
ARTICLE IV - DEFINITIONS shall be amended as follows:
1. Subparagraph (a) is deleted and replaced with the
following:
(a) NON-STANDARD PRIVATE PASSENGER AUTOMOBILE BUSINESS
This term shall mean non-standard private passenger physical
damage business written, in-force, or renewed by the Company
on risks located in the states of Alabama, Georgia and
Minnesota and serviced by the Reinsurer.
2. Subparagraphs (e), and (f) are deleted in their
entirety and without replacement.
ARTICLE VII - REPORTS AND REMITTANCES will be deleted in its
entirety and replaced with the following:
MONTHLY
The Reinsurer shall report to the Company, within 45 days
after the close of each month:
(1) The reinsurance premium written for the month
by line of insurance, and
(2) The Company's portion of claims, losses, and adjustment
expense paid and outstanding during the month by line of
insurance and year of claim or loss.
QUARTERLY
On a quarterly basis, the Company shall calculate and invoice
the Reinsurer for premium taxes due. The amount due shall be
remitted by the Reinsurer within 30 days of receipt of the
invoice.
ARTICLE VIII - MANAGEMENT OF CLAIMS AND LOSSES shall be deleted in
its entirety and replaced with the following:
The Reinsurer shall investigate and settle or defend all claims and
losses and perform such other functions as it may determine proper for
servicing the Reinsured Business. When requested by the Company, the
Reinsurer shall permit the Company, at the expense of the Company, to be
associated with the Reinsurer in the defense or control of any claim,
loss, or legal proceeding which involves or is likely to involve the
Company. All settlements and payments of claims or losses by the
Reinsurer, whether under strict policy conditions or by way of compromise,
shall be binding on the Company, subject to the terms of this Agreement.
Company shall deliver to Reinsurer on the Effective Date of this Addendum
all files and records, in whatever form, pertaining to the Non-standard
Private Passenger Automobile Business including, but not limited to,
accounting, claims, underwriting, and legal. Such files and records shall
belong to and remain the property of Company until one (1) year after all
policies constituting the Reinsured Business shall have expired either by
cancellation or otherwise, and all outstanding losses and Adjustment
Expenses have been settled, at which time such files and records shall
become the property of and owned by Reinsurer.
ARTICLE IX - RECOVERIES - the first paragraph shall be deleted in
its entirety.
ARTICLE XI -- SPECIAL ACCEPTANCES shall be deleted in its entirety.
ARTICLE XII - RESERVES AND TAXES - the following paragraph will be
added:
Company shall pay premium taxes on premiums received prior to the
Effective Date of this Addendum.
ARTICLE XIII - OFFSET shall be deleted in its entirety.
ARTICLE XIV - INSPECTION OF RECORDS shall be deleted in its entirety
and replaced with the following:
The Reinsurer shall allow the Company to inspect, at reasonable
times, the records of the Reinsurer relevant to the business reinsured
under this Agreement, including Reinsurer files concerning claims, losses,
or legal proceedings which involve or are likely to involve the Company.
ARTICLE XVII - COMMENCEMENT AND TERMINATION is deleted in it
entirety and replaced with the following:
1. The effective date of this Agreement is at 12:01 a.m. central
standard time, on ______________, 1999 (the "Effective Date").
This Addendum and Agreement shall remain continuously in force
until June 30, 2001, or until such earlier date if terminated
according to the provisions set forth herein.
2. This Agreement may be terminated under any of the
following circumstances:
(a) Immediately by mutual consent of the Parties to
this Agreement.
(b) Immediately, upon written notice by Company, if
Reinsurer is found to be insolvent by any state
insurance department or court of competent jurisdiction,
or is placed in supervision, conservation,
rehabilitation, or liquidation, or has a receiver or
supervisor appointed.
(c) By Reinsurer, upon thirty (30) days written notice, if
Company is found to be insolvent by any state insurance
department or court of competent jurisdiction, or is
placed in supervision, conservation, rehabilitation or
liquidation, or has a receiver or supervisor appointed.
(d) By Company, immediately and automatically without prior
written notice should the Department of Insurance with
jurisdiction over the Reinsured Business require
cancellation or disallow credit for this reinsurance.
(e) By either Party, upon thirty (30) days written notice to
the other Party if the non-terminating Party:
(1) commits an intentionally wrongful or
fraudulent act material to the Agreement;
(2) materially breaches a provision of the Agreement
and fails to cure such breach within sixty (60)
days after written notice thereof; or
(3) is in a financially impaired condition under the
applicable law of any state having jurisdiction
over any of the Reinsured Business.
(f) By Reinsurer, upon 30 days written notice, if Reinsurer
or an affiliate becomes licensed to write the Reinsured
Business under this Agreement in Alabama, Georgia, or
Minnesota.
3. When this Agreement terminates for any reason, reinsurance
hereunder shall continue to apply to the Reinsured Business
in force at the time and date of termination until
expiration or cancellation of such business. It is
understood that any policies constituting the Reinsured
Business with effective dates prior to the termination date
but issued after the termination date are covered under this
Agreement. Additionally, the reinsurance hereunder shall
continue to apply as to policies constituting the Reinsured
Business which must be issued or renewed, as a matter of
state law.
4. Upon termination of this Agreement, Reinsurer shall not be
relieved of or released from any obligation created by or
under this Agreement in relation to payment, expenses,
reports, accounting or handling, which relate to the
Reinsured Business. The Parties covenant and agree that they
will cooperate with each other in the handling of all such
run-off insurance business until all policies constituting
the Reinsured Business shall have expired either by
cancellation or under the terms of such policies and all
outstanding losses and loss adjustment expenses have been
settled. Upon termination of this Agreement, the Reinsurer
shall service the run-off of the Reinsured Business, and its
duties for such run-off shall include, but not be limited
to, handling all claims, and handling and servicing all
policies constituting the Reinsured Business through their
natural expiration, together with any policy renewals,
required to be made by provisions of applicable law, whether
or not the effective date of such renewal is subsequent to
the effective date of termination of this Agreement. All
costs and expenses associated with the handling of such
run-off business following the termination of this Agreement
shall be borne solely by Reinsurer. Reinsurer may appoint a
successor to handle the run-off, subject to Company's
approval (which shall not be unreasonably withheld), at no
cost to Company.
5. Except as otherwise provided in this Agreement, in the event
this Agreement is terminated, Reinsurer shall remain liable
to and shall, immediately upon request, reimburse Company
for any assessment made upon Company by a state insurance
guaranty association pursuant to the applicable provisions
of state's insurance laws, which applies to the Reinsured
Business to the effective date of termination. Company shall
likewise remain liable for, and account to Reinsurer for any
recovery of such assessment under a state insurance guaranty
association, or any credit allowed against its premium tax
pursuant to applicable law.
6. The title and ownership of all undelivered policy forms,
books, and supplies containing Company's name related to the
Reinsured Business is in Company. Upon termination, these
materials shall be delivered immediately by Reinsurer to
Company, at Company's expense, without compelling Company to
resort to any legal proceedings to secure the property of
Company.
7. Upon termination of this Agreement, Reinsurer shall provide
Company with a final accounting and settlement of all
matters relating to the Reinsured Business.
ARTICLE XIX - EXCESS OF ORIGINAL POLICY LIMITS AND EXTRA
CONTRACTUAL OBLIGATIONS:
(A) EXCESS OF ORIGINAL POLICY LIMITS - the following sentence
will be added at the end of the first paragraph:
provided, however, that loss under this provision shall not
include any loss which otherwise would be subject to this
Article XIX (a) if (i) prior to the Effective Date the
Company knew or reasonably should have known that it had
breached the covenant of good faith and fair dealing, or had
taken other action rendering it liable for payment in excess
of a policy limit, with respect to the matter giving rise to
the loss, or (ii) such loss is specifically referred to in
any other agreements between the parties or their affiliates
and is established therein an obligation of Company or its
affiliates.
(B) EXTRA CONTRACTUAL OBLIGATIONS - the following sentence will
be added at the end of the first paragraph:
provided, however, that loss under this provision shall not
include any liabilities which otherwise would be subject to
this Article XIX (b) if (i) prior to the Effective Date the
Company knew or reasonably should have known that it had
breached the covenant of good faith and fair dealing, or had
taken other action rendering it liable for payment of an
extra-contractual obligation, or (ii) such extra-contractual
obligation is specifically referred to in any other
agreements between the parties or their affiliates and is
established therein an obligation of Company or its
affiliates.
ARTICLE XX - AGENTS BROKERS AND MANAGING GENERAL AGENTS shall be
added:
A. As of the Effective Date, the Reinsurer shall assume the
obligation to pay any broker, agent or managing general agent appointed by
the Company for the solicitation, sale, marketing or production of the
Reinsured Business, including payment of commissions, service fee and
other compensation that may be due such brokers, agents or managing
general agents according to the written agreements between Company and
such brokers, agents or managing general agents and as approved by
Reinsurer. Company shall appoint any agent, broker or managing general
agent reasonably requested by Reinsurer, and Reinsurer shall not accept or
process any Reinsured Business from any person not appointed by Company.
Company shall use such standards, rules and instructions for producing the
Reinsured Business as required by Reinsurer.
B. As of the Effective Date, the Reinsurer agrees to pay for the
license or appointment fees imposed on insurance companies to license or
appoint agents, brokers or managing general agents that are authorized by
Reinsurer to solicit, sell, market or produce the policies constituting the
Reinsured Business, provided that Reinsurer shall have the right to require
Company to terminate the right of an agent, broker or managing general
agent to produce such policies.
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed
in duplicate this ____ day of _________, 1999.
ACCEPTANCE INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
PHOENIX INDEMNITY INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
As of the Effective Date, The Millers Insurance Company shall guaranty the
performance of the financial obligations of Reinsurer under this Quota Share
Reinsurance Agreement, subject to any defenses available to Reinsurer under the
Agreement.
THE MILLERS INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
Date Date
------------------------------- -------------------------------
<PAGE>
Exhibit C
100% QUOTA SHARE
REINSURANCE AGREEMENT
between
[ACCEPTANCE AFFILIATE]
INSURANCE COMPANY
(hereinafter "Company")
and
[MILLERS AFFILIATE]
INSURANCE COMPANY
(hereinafter "Reinsurer")
Effective Date: ___________, 1999
<PAGE>
100% QUOTA SHARE REINSURANCE AGREEMENT
THIS 100% QUOTA SHARE REINSURANCE AGREEMENT (this "Agreement") is made and
entered into by and among [Acceptance Affiliate] Insurance Company, an insurance
company organized under the laws of the State of __________ (hereinafter
"Company") and [Millers Affiliate] Insurance Company, an insurance company
organized under the laws of the State of ___________ (hereinafter "Reinsurer").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Purchase Agreement dated May 10, 1999 (the
"Purchase Agreement"), Acceptance Insurance Company agreed to (i) sell to
Millers American Group, Inc. all of the issued and outstanding shares of
capital stock of Phoenix Indemnity Insurance Company, Reinsurer herein, and
(ii) transfer to Reinsurer all private passenger nonstandard automobile
insurance (including liability and no-fault, uninsured and underinsured
motorists, medical payments coverage, guest passenger liability, and
automobile physical damage coverage, as applicable) previously written by
Acceptance Insurance Company and its affiliated insurance companies.
B. As an affiliate of Acceptance Insurance Company, Company has previously
written the private passenger nonstandard automobile insurance referred to
above in the states of ______________________________________________
____________________________as a fronting arrangement for its affiliate,
Phoenix Indemnity Insurance Company.
C. Upon consummation of the transaction contemplated in the Purchase
Agreement, Company has agreed to issue policies of private passenger
nonstandard automobile insurance in the states of ___________________
__________________ (the "Production States," whether one or more) pursuant
to this Agreement and cede to Reinsurer a 100% quota share of all premiums
and losses arising from all of Company's private passenger nonstandard
automobile insurance business produced in the Production States pursuant to
this Agreement (collectively, the "Reinsured Business").
STATEMENT OF AGREEMENTS
NOW, THEREFORE, in consideration of the premises and the mutual promises and
covenants hereinafter contained and intending to be legally bound, the parties
hereto agree as follows:
Article I
Classes of Reinsured Business
1.1 During the term of this Agreement, Company obligates itself to cede to
Reinsurer, and Reinsurer obligates itself to accept, 100% of Company's
gross liability under all policies, certificates, contracts, binders,
agreements or other proposals or evidences of insurance, new and renewal
policies, binders, and contracts of insurance (hereinafter called
"Policies") issued by and on behalf of Company with an effective date on
or after the Effective Date of this Agreement as private passenger
nonstandard automobile insurance, including physical damage, liability,
personal injury protection, uninsured/underinsured motorist, medical
payments, and miscellaneous coverages.
1.2 This Agreement also shall apply to, and Reinsurer also shall reinsure,
100% of Company's gross liability for personal injury protection as
required under the state insurance laws applicable to the Reinsured
Business.
1.3 The Reinsured Business shall include every original policy, rewrite,
renewal or extension (whether before or after termination of this
Agreement) of Reinsured Business which is required by applicable statutes,
rules or regulations.
1.4 Company may not appoint or contract with other reinsurers, agents and/or
general agents with respect to private passenger nonstandard automobile
insurance except as approved by Reinsurer.
1.5 As between Company and Reinsurer, Reinsurer shall own the Reinsured
Business and all renewals, expirations, customer lists, and other
intangible property interests associated with the Reinsured Business.
Article II
Exclusions
Neither Reinsurer nor Agents appointed by Company at Reinsurer's request will
solicit or accept proposals or bind Company for insurance coverage on any risk
other than the Reinsured Business. Without limiting the generality of the
foregoing statement, the following risks shall not be reinsured hereunder:
2.1 All business not specifically described as Reinsured Business under
Section 1.1 of this Agreement.
2.2 Garagekeepers legal liability.
2.3 Vendors single interest.
2.4 Vehicles principally used as ambulances, fire and police units.
2.5 Commercial vehicles rated as such, and all automobile fleets.
2.6 Mobile homes.
2.7 Automobile dealers.
2.8 Loss or damage caused by or resulting from war, invasion, hostilities,
acts of foreign enemies, civil war, insurrection, military or usurped
power, martial law or confiscation by order of any governmental or public
authority, but not excluding loss or damage which would be covered under a
policy or standard form containing a standard war exclusion clause.
2.9 Nuclear incidents.
2.10 Reinsurance issued for the account of other insurance companies.
2.11 Vehicles used in racing or speed events.
2.12 Taxis, limos, buses, and livery.
2.13 Pools, association, syndicates and insolvency funds.
2.14 Seepage and pollution.
Article III
Servicing and Claims Handling
3.1 In consideration of the amounts paid to Reinsurer herein, Reinsurer shall
take, on Company's behalf, any and all action with regard to the Reinsured
Business as may be necessary in the proper servicing of such business.
3.2 Reinsurer shall comply with all applicable local, state, and federal laws,
regulations, rules, and requirements regarding Reinsurer's duties under
this Agreement and shall not engage in any conduct which is in violation
of any applicable law.
3.3 Reinsurer's obligations to service the Reinsured Business shall include,
but not be limited to, the following actions taken on Company's behalf:
(a) Reinsurer (or its designee) shall underwrite, quote, rate, code,
issue, and deliver the Policies relating to the Reinsured Business.
Company agrees to delegate any and all such underwriting and issuance
functions to Reinsurer, in its sole discretion, and to allow the
issuance of its policy forms and other appropriate documentation for
all business produced by Reinsurer or the Producing Agents.
(b) Reinsurer (or its designee) shall issue notices of cancellation,
non-renewal notices, and endorsements, changes, and modifications on
the Policies.
(c) Reinsurer (or its designee) shall bill and be responsible for
collections from Producing Agents and policyholders with regard to the
Reinsured Business. Such premiums shall be promptly remitted or
credited to Reinsurer.
(d) Reinsurer and Company will work together such that all communications
after the Effective Date from Producing Agents and insureds relating
to the Reinsured Business are directed to Reinsurer. Reinsurer will
respond to such communications in a timely manner.
(e) Reinsurer shall work together with Company to respond to any
correspondence from any regulatory authority relating to the Reinsured
Business. Company shall provide Reinsurer with copies of any
correspondence to or from any governmental body relating to the
Reinsured Business.
(f) Reinsurer shall prepare and keep accurate and complete books, records,
and accounts as are necessary to properly reflect the performance of
Company's and Reinsurer's obligations on the Reinsured Business.
Reinsurer shall promptly send to Company, as necessary, policy or
underwriting files relating to the Reinsured Business.
(g) Reinsurer shall prepare for the Reinsured Business all statistical
information required for and necessary to prepare reports, statements,
or other documents required by law, or as may be reasonably requested
by Company.
(h) To the extent required by applicable law, Reinsurer shall provide
Company with a periodic accounting within sixty (60) days of the end
of each calendar quarter. To the extent there are any amounts due and
owing between the parties, the periodic accounting will be followed by
an appropriate cash settlement within thirty (30) days thereof. The
requirements in this subsection shall not be conditional upon the
performance of any other agreement or any other person not a party
hereto.
3.4 Each Party shall cooperate with the other Party with respect to any audits
relating to the Reinsured Business or the Agreement including, but not
limited to, providing the related books and records and space necessary to
perform such audits.
3.5 Reinsurer shall not use any advertisement respecting Company or the
Reinsured Business in any publication or issue any circular or paper
referring to Company or such business without first obtaining the consent
of Company. Such consent shall not be unreasonably withheld. Reinsurer
shall establish and maintain records of any such advertising as required
by applicable law.
3.6 Company agrees that Reinsurer shall have the absolute right to determine
the rates and prepare the rate filing for Company to file during the term
of this Agreement and during the term of the run-off.
3.7 Reinsurer and Company agree that Reinsurer (or its designee) shall settle,
compromise, investigate, adjust, and pay claims, losses, and related
expenses covered hereunder, deal with subrogations, salvages, and
recoveries, and commence, continue, defend, hire counsel, assume all
litigation expense, compromise, settle, or withdraw from actions, suits,
or prosecutions, and generally do all such matters and things relating to
any claim, dispute, or loss arising out of the Reinsured Business.
3.8 Reinsurer shall be responsible for, and have exclusive authority with
respect to, the determination or interpretation of coverage on Policies
relating to the Reinsured Business.
3.9 Should Company be ordered or instructed by any regulatory authority to
take any action or refrain from taking any action with regard to any
claim, Reinsurer shall be bound by and shall follow the order or
instructions of such regulatory authority as if Reinsurer were the object
of such order or instruction.
3.10 Company will promptly notify Reinsurer, or such person or entity as
Reinsurer may designate, of any claim, suit, or action against Company
relating to the Reinsured Business when notified of a claim, suit, or
action against Company, and will promptly furnish to Reinsurer, or such
person or entity as Reinsurer may designate, all summonses, citations,
complaints, petitions, counterclaims, or other pleadings and legal
instruments served upon Company in connection therewith.
3.11 All records pertaining to claims arising under the Reinsured Business
shall be available to Company or its representatives, or any duly
appointed examiner for any state within the United States. Reinsurer will
maintain such files, and Reinsurer agrees that it will not destroy any
such records in its possession without the prior written approval of
Company.
Article IV
Reinsurance Follows Policies
Reinsurer's liability shall attach simultaneously with that of the Company and
shall be subject in all respects to the same risks, terms, conditions,
interpretations and waivers, and to the same modifications, alterations and
cancellations, as the Policies. Reinsurer and Company intend by this Agreement
that Reinsurer shall, in every case to which this Agreement applies, follow the
fortunes of the Company. Nothing in this Agreement shall in any manner create
any obligations or establish any rights against the Reinsurer in favor of any
third parties or any persons not parties to this Agreement.
Article V
Commencement and Termination
5.1 The effective date of this Agreement is at 12:01 a.m. central time, on
___________ (the "Effective Date"). This Agreement shall remain
continuously in force until [June 30, 2001], or until such earlier date if
terminated according to the provisions set forth herein.
5.2 This Agreement may be terminated under any of the following circumstances:
(a) Immediately by mutual consent of the Parties to this Agreement.
(b) Immediately, upon written notice by Company, if Reinsurer is found to
be insolvent by any state insurance department or court of competent
jurisdiction, or is placed in supervision, conservation,
rehabilitation, or liquidation, or has a receiver or supervisor
appointed.
(c) By Reinsurer, upon thirty (30) days written notice, if Company is
found to be insolvent by any state insurance department or court of
competent jurisdiction, or is placed in supervision, conservation,
rehabilitation or liquidation, or has a receiver or supervisor
appointed.
(d) By Company, immediately and automatically without prior written notice
should any Department of Insurance with jurisdiction over any portion
of the Reinsured Business require cancellation or disallow credit for
this reinsurance.
(e) By either Party, upon thirty (30) days written notice to the
non-terminating Party if the non-terminating Party:
(1) commits an intentionally wrongful or fraudulent act material to
the Agreement;
(2) materially breaches a provision of the Agreement and fails to
cure such breach within sixty (60) days after written notice
thereof; or
(3) is in a financially impaired condition under the applicable law
of any state having jurisdiction over any of the Reinsured
Business.
(f) By Reinsurer, upon 30 days written notice, as to Reinsured Business in
any state if Reinsurer or an affiliate of Reinsurer becomes licensed
to write the Reinsured Business under this Agreement in that state.
(g) By Reinsurer, upon 60 days written notice.
5.3 When this Agreement terminates for any reason, reinsurance hereunder shall
continue to apply to the Reinsured Business in force at the time and date
of termination until expiration or cancellation of such business. It is
understood that any Policies with effective dates prior to the termination
date but issued after the termination date are covered under this
Agreement. Additionally, the reinsurance hereunder shall continue to apply
to Policies which must be issued or renewed as a matter of state law until
the expiration dates on said Policies.
5.4 Upon termination of this Agreement, Reinsurer shall not be relieved of or
released from any obligation created by or under this Agreement in
relation to payment, expenses, reports, accounting or handling for the
Reinsured Business. The Parties covenant and agree that they will
cooperate with each other in the handling of all such run-off insurance
business until all Policies have expired either by cancellation or under
the terms of such Policies and all outstanding losses and loss adjustment
expenses have been settled. Upon termination of this Agreement, the
Reinsurer shall service the run-off of the Reinsured Business. Reinsurer's
duties for such run-off shall include, but not be limited to, handling all
claims, and handling and servicing all Policies through their natural
expiration, together with any policy renewals, required to be made by
provisions of applicable law, whether or not the effective date of such
renewal is subsequent to the effective date of termination of this
Agreement. All costs and expenses associated with the handling of such
run-off business following the termination of this Agreement shall be
borne solely by Reinsurer. Reinsurer may appoint a successor to handle the
run-off, subject to Company's approval (which shall not be unreasonably
withheld), at no cost to Company.
5.5 Except as otherwise provided in this Agreement, in the event this
Agreement is terminated, Reinsurer shall remain liable to and shall,
immediately upon request, reimburse Company for any assessment made upon
Company by an Insurance Guaranty Association pursuant to the state
insurance laws applicable to the Reinsured Business. Company shall
likewise remain liable for, and account to Reinsurer for any recovery of
such assessment or any credit allowed against its premium tax pursuant to
applicable law.
5.6 The title and ownership of all undelivered policy forms, books, and
supplies related to the Reinsured Business is in Company. Upon
termination, these materials shall be delivered immediately by Reinsurer
to Company, without compelling Company to resort to any legal proceedings
to secure the property of Company.
5.7 This Agreement provides for termination on a run-off basis. The relevant
provisions of the Agreement shall apply to the Reinsured Business being
run off and shall survive the termination of this Agreement.
5.8 Upon termination of this Agreement, Reinsurer shall provide Company with a
final accounting and settlement of all matters relating to the Reinsured
Policies.
Article VI
Rights of Third Parties
Nothing herein shall in any manner create any obligations to establish any
rights of, create any direct or indirect agreement with, or create any privity
of contract between, the owners or holders of Policies and Reinsurer.
Article VII
Retention and Limit
Company shall cede and Reinsurer shall accept 100% of Company's gross liability
on each Policy reinsured under this Agreement.
Article VIII
Commissions, Payments, and Fees
8.1 In consideration of the acceptance by Reinsurer of one hundred percent
(100%) of Company's liability on Reinsured Business, Reinsurer is entitled
to one hundred percent (100%) of the Net Written Premiums (as hereinafter
defined) received by Company, Agent, or Reinsurer on Policies reinsured
less (i) the ceding fee allowed Company pursuant to Section 8.2 hereof,
(ii) the commission paid to the Producing Agents (which Reinsurer shall
pay directly pursuant to Article IX), and (iii) the amount of premium
taxes on Policies subject to reinsurance hereunder payable pursuant to
Section 8.3 hereof. "Net Written Premiums" shall mean the gross collected
premium (including policy fees) charged on all original and renewal
Policies written on behalf of Company, less return premiums.
8.2 Reinsurer shall pay directly to Company a fee within sixty (60) days
following the end of each month (as a ceding fee), 2% of Net Written
Premiums. The ceding fee shall be paid based on Net Written Premium for
Reinsured Business originally written or renewed by Company under this
Agreement on or after the Effective Date.
8.3 Reinsurer shall allow and pay within sixty (60) days of the date when due
from Company an amount equal to the amount of state premium tax on the Net
Written Premiums for the past month. Should any additional premium tax be
assessed at any time on Net Written Premium, Reinsurer shall pay Company
the amount of such additional premium tax within fifteen (15) days of
being informed by Company of such additional premium tax. Reinsurer shall
pay to Company within five (5) days prior to the due date of any estimated
premium tax payment, the amount due. In no event shall any amount required
to be paid by Reinsurer pursuant to this Section 8.3 exceed the actual
amount of premium taxes payable by Company on Net Written Premiums from
the Policies.
8.4 Reinsurer guarantees that Company will receive all amounts payable to
Company hereunder irrespective of any events, losses or developments for
the term of this Agreement. Such payment is not dependent upon
underwriting experience, loss experience, whether premium is collected or
not, or any other event foreseen or unforeseen by the Parties at the
inception of this Agreement.
Article IX
Commission to the Producing Agents
The commission owed to Agents is an obligation owed directly by Reinsurer. No
funds of any kind shall be due the Agents from Company.
Article X
Assignments, Assessments, Premium Taxes, Fines, and Penalties
10.1 This Agreement shall apply to risks assigned to Company under any
governmental or statutory requirement to issue policies under an assigned
risk plan if such risks were assigned to Company because of the Reinsured
Business.
10.2 This Agreement shall apply to and Reinsurer shall immediately reimburse
Company 100% for any assessments made against Company pursuant to those
laws and regulations creating obligatory funds (including, but not limited
to, insurance guaranty and insolvency funds), pools, joint underwriting
associations, FAIR plans and similar plans, or any assessments made
pursuant to insurance guaranty associations under applicable state
insurance laws. Amounts owed by Reinsurer under this Article shall be
payable directly by Reinsurer to Company. Reinsurer shall be entitled to
receive from Company on or prior to the 31st day of March of each year
during the term of this Agreement (or such date on which such premium
taxes are paid) a sum equal to the premium tax credit that is allowed to
Company with respect to such assessments. The premium tax credit allowed
Reinsurer hereunder is to be on a pro rata and first-in, first-out basis.
Company shall promptly return to Reinsurer any amount of assessment
refunded to or credited to Company pursuant to the applicable provisions
of the applicable state insurance laws.
10.3 Reinsurer also shall pay promptly and directly to Company any fines,
penalties or any other charge incurred by Company as respects the
Reinsured Business hereunder unless such fines, penalties and/or any other
charge are a direct result of any gross negligence, willful misconduct,
fraud or violation of criminal law by Company.
Article XI
Accounts and Reports
11.1 In lieu of Company furnishing Reinsurer with bordereaux showing the
particulars of all business ceded hereunder, Reinsurer shall furnish or
cause to be furnished to Company, within forty-five (45) days after the
close of each of the respective periods indicated below (on forms
agreeable to the Parties), monthly, quarterly and annual reports
accurately stating the following statistical data in respect to the
Reinsured Business.
(a) Monthly, with the data segregated by major classes.
(i) Ceded premiums written.
(ii) Ceded unearned premiums.
(iii) Ceded losses paid.
(iv) Ceded adjustment expenses paid during this month.
(v) Losses outstanding.
(vi) Commission due the Producing Agents.
(vii) Ceding fees due Company.
(b) Quarterly and annually, respectively, with the data segregated by
major classes, such data as is necessary to complete, respectively,
quarterly and annual statement blanks.
Such information is to be furnished not later than the 45th day
after the end of a particular year or calendar quarter.
(c) Periodic, with data segregated by major lines.
Statistical or other data as may be requested from time to time by
regulatory authorities.
11.2 In order to facilitate the handling of the Reinsured Business, Reinsurer
agrees to furnish Company with any additional reports necessary to provide
the information needed by Company to prepare its monthly, quarterly and
annual statements to regulatory authorities.
Article XII
Losses and Loss Adjustment Expenses
12.1 Reinsurer shall assume 100% of the risks covered by this Agreement and
shall be liable for and pay on behalf of Company 100% of all losses,
judgments, interest on judgments, settlements whether under strict policy
conditions or because of compromise, and expenses incurred by Company
(including, but not limited to, costs, expenses and fees, including
attorneys' fees and expenses, resulting from a declaratory judgment or
injunctive action brought by or against an insured or other person).
Reinsurer shall be credited with 100% of any amount received by Company as
salvage, subrogation or recovery.
12.2 Company hereby empowers Reinsurer to accept notice of and investigate any
claim arising under any of the Policies, to pay, adjust, settle, resist,
or compromise any such claim. Reinsurer will exercise the authority
granted hereunder in good faith and shall pay all valid claims, if, when,
and as they become due.
12.3 Company will promptly notify Reinsurer of any claim, suit or action
brought against Company under any of the Policies when Company actually is
notified of such a claim, suit or action against Company, and will
promptly furnish to Reinsurer all summons, citations, complaints,
petitions, counterclaims and other pleadings and legal instruments served
upon Company in connection therewith. Company hereby further empowers
Reinsurer to dispose of any salvage received as the result of any loss
settlement hereunder, and to enforce any right of Company against any
person or organization for damages or equitable relief for any loss under
any of the Policies, employing legal counsel where necessary, and all sums
received as a result thereof will be treated as current loss recoveries by
Company and Reinsurer. Company further agrees to furnish Reinsurer any and
all legal instruments necessary to implement the foregoing authorizations.
Upon request, Reinsurer shall furnish to Company any or all documents and
correspondence relating to the subject matter hereof.
12.4 All records pertaining to claims arising under the Policies shall be
deemed to be jointly owned records of Company and Reinsurer, and shall be
made available to Company or Reinsurer or their representatives or any
duly appointed examiner for any State within the United States. Company
and Reinsurer agree that they will not destroy any such records in their
possession without the prior written approval of the other Party, except
that Company shall not be required to retain files longer than required by
applicable law.
12.5 Reinsurer shall establish a separate claim register or method of
registering claims arising under the Policies covered by this Agreement so
that all claims may be segregated and identified separate and apart from
other records of Reinsurer, with such claims register to identify each
claim on an individual case basis both as to the identity of the
insured(s) and the claimant(s) and the reserve for loss and adjusting
expense. Such claim register shall be kept in a form whereby Company can,
at any time, determine the status of any claim arising under Policies
covered by this Agreement. Such records shall reflect the amount of
reserves established for the individual claim and the date when such
reserve was established, and if closed, whether such claim was closed with
or without payment, and if with payment, the amount paid thereon.
Reinsurer shall also maintain a complaint log for the Reinsured Business
as may be required by applicable law.
12.6 Reinsurer shall be liable for 100% of the loss adjustment expenses
incurred by Company in connection with claims and settlements under
Policies subject hereto, including, but not limited to, all attorney's
fees, other litigation expenses and interest on judgments and all other
expenses, (including but not limited to attorney's fees and costs incurred
in a declaratory judgment or injunctive action with an insured or other)
but not including office expenses or salaries of Company's regular
employees, and Reinsurer shall be credited with 100% of any recoveries of
such loss adjustment expense.
12.7 In the event of a claim under a Policy, Reinsurer shall be liable for 100%
of the loss adjustment expense incurred by Company in connection
therewith. Reinsurer shall be credited with any recovery of loss
adjustment expense previously paid.
Article XIII
Loss in Excess of Policy Limits/ECO
13.1 In the event Company pays or is held liable to pay an amount of loss in
excess of its policy limit, but otherwise within the terms of its Policy
(hereinafter "loss in excess of policy limits") or any punitive,
exemplary, compensatory or consequential damages other than loss in excess
of policy limits (hereinafter "extra-contractual obligations") in relation
to handling a claim reinsured hereunder or anything else related to the
Reinsured Business hereunder, 100% of the loss in excess of policy limits
and/or 100% of the extra contractual obligations shall be added to
Company's loss, if any, under the Policy involved, and the sum thereof
shall be reinsured 100% under this Agreement.
13.2 This Article shall not apply to any loss incurred by Company as a result
of any gross negligence, willful misconduct, fraud, or violation of a
criminal law by an officer, director or employee of Company.
Article XIV
Errors and Omissions
Company and Reinsurer shall not be prejudiced in any way by any omission through
clerical error, accident or oversight to cede to Reinsurer any business rightly
falling under the terms of this Agreement, or by erroneous cancellation, either
partial or total, of any cession, or by omission to report, or by erroneously
reporting any losses, or by any other error or omission if each such error or
omission is corrected immediately upon discovery.
Article XV
Access to Records
15.1 All records pertaining to Policies issued on behalf of Company through or
by Reinsurer or its designated representative subject to this Agreement,
shall be deemed to be jointly owned records of Company and Reinsurer, and
shall be made immediately available to Company or Reinsurer or their
representative or any duly appointed examiner for any State within the
United States. These records shall be kept in the State of Arizona or as
otherwise authorized by applicable regulatory authorities. Notwithstanding
the foregoing, Reinsurer is authorized to maintain duplicate files of all
such records outside the State of Arizona. Company and Reinsurer agree
that neither will destroy any such records in their possession with
respect to Reinsured Business without the prior written approval of the
other, except that Company shall not be required to retain files longer
than required by applicable law.
15.2 Neither Party shall take any action limiting, restricting or in any manner
inhibiting or encumbering the other Party's access to inspect any records
pertaining to this Agreement or to the Reinsured Business, whether or not
such records are in the possession or under the control of either Party,
nor shall either Party fail to take actions to secure the other Party's
right of inspection of such records.
Article XVI
Sale or Transfer of Company
Company agrees to give Reinsurer 30 days advance written notice of any sale or
transfer of Company's business, or Company's consolidation with another firm, in
order that Reinsurer may, in its sole discretion:
16.1 Allow the assignment of this Agreement to the successor, if applicable; or
16.2 Enter into a new reinsurance agreement with the successor; or
16.3 Terminate this Agreement as provided in Section 5.2 of this Agreement.
Article XVII
Insolvency
17.1 In the event of the insolvency of Company, reinsurance under this
Agreement shall be payable by Reinsurer on the basis of the liability of
Company under the Policies reinsured, without diminution because of such
insolvency, to Company or to its domiciliary liquidator or receiver.
17.2 It is agreed, however, that the liquidator or receiver or statutory
successor of Company will give written notice to Reinsurer of the pendency
of any claim against Company on a Policy within a reasonable time after
such claim is filed in the insolvency proceeding and that during the
pendency of such claim Reinsurer may investigate such claim and interpose,
at its own expense, in the proceeding where such claim is to be
adjudicated any defense or defenses which it may deem available to Company
or its liquidator or receiver or statutory successor. The expense thus
incurred by Reinsurer will be chargeable, subject to court approval,
against Company as part of the expense of liquidation to the extent of a
proportionate share of the benefit which may accrue to Company solely as a
result of the defense undertaken by Reinsurer.
17.3 Should Company be placed into liquidation or should a receiver be
appointed, Reinsurer will, to the extent permitted by law, be entitled to
deduct from any sums which may be or may become due to Company under this
Agreement, any sums which are due to Reinsurer by Company under this
Agreement and which are payable at a fixed or stated date, as well as any
other sums due Reinsurer which are permitted to be offset under applicable
law.
17.4 It is further agreed that, in the event of the insolvency of Company, the
reinsurance obligations under this Agreement shall be payable directly by
Reinsurer to Company or to its domiciliary, liquidator, or receiver,
except (a) as provided by applicable law, (b) where this Agreement
specifically provides another payee of such reinsurance in the event of
the insolvency of Company, and/or (c) where Reinsurer, with the consent of
the direct insured, has assumed the policy obligations of Company as
direct obligations of Reinsurer to the payee under the Policies and in
substitution for the obligation of Company to such payee.
Article XVIII
Appointment of Agents, Etc.
18.1 Company has entered into agency agreements with various managing general
agents, general agents, and individual agents for the production of
private passenger nonstandard automobile insurance, a complete listing of
which is attached hereto as Exhibit A and fully incorporated herein by
this reference. Company agrees (i) to maintain such appointments and
agency agreements at the direction of Reinsurer, and (ii) to allow
Reinsurer to amend or terminate such appointments and agency agreements in
Reinsurer's sole discretion.
18.2 Company will, at the request of Reinsurer, appoint other Agents to produce
additional business to be reinsured under this Agreement. The form of
agreement for appointing these other Agents shall be determined by
Reinsurer. Reinsurer shall hold Company harmless from and indemnify it
pursuant to this Agreement with respect to matters caused directly or
indirectly by any action of, or failure to act, by any Agent.
18.3 Reinsurer shall be responsible for the supervision of the Agents appointed
by Company at its request, including compliance with state licensing laws
and the financial condition of such Agents.
18.4 Reinsurer shall guarantee payment to Company of any amounts due Company
from business produced by or through all Agents appointed or maintained by
Company at the request of and on behalf of Reinsurer. Reinsurer shall be
solely responsible for notifying such Agents of this Agreement and of any
termination hereof, and Reinsurer shall be responsible for the
consequences of any failure to provide such notification.
18.5 As used herein, "Agent(s)" shall refer to all managing general agents,
general agents, producing agents, soliciting agents, and individual agents
currently appointed by Company as of the Effective Date, or subsequently
appointed or maintained at Reinsurer's direction, to write private
passenger nonstandard automobile insurance.
Article XIX
Hold Harmless Provisions
19.1 Notwithstanding anything else contained herein to the contrary, as
respects all matters related to this Agreement, in addition to those
specific provisions insulating Company from specific risks hereunder,
Reinsurer hereby covenants and agrees to reimburse and hold Company
harmless from and against every claim, demand, liability, loss, damage,
cost, charge, attorneys' fees, expense, suit, order, judgment and
adjudication of every kind or character ("Damages") regarding, arising
from, or related to this Agreement and/or the Reinsured Business
(including, but not limited to, underwriting loss, credit loss, and/or
run-off expense and/or all legal fees and expenses incurred by Company in
asserting its rights under this Agreement) whether or not such Damages are
within the terms of Policies written and reinsured hereunder. Reinsurer's
obligation hereunder includes, but is not limited to: all liability for
agents' balances, return premiums and commissions; deceptive trade
practice, consumer protection and bad faith liability; premiums, policy
fees or other charges (whether collected or not); Damages incurred by
Company due to a lawsuit between Reinsurer and/or an Agent; all actions or
inactions by an Agent relating to business produced pursuant to this
Agreement or any agreement with a premium finance company; all fees and/or
commissions owing to an Agent under this and the aforementioned related
agreements; and any and all amounts owed to premium finance companies by
Company or an Agent.
19.2 Company shall not be liable to Reinsurer for premiums unless Company
itself has actually received those premiums and not remitted them to
Reinsurer. Reinsurer may not offset any balances on account of losses,
loss adjustment expenses or any other amounts due except as to premiums
actually received by Company itself (as distinct from premiums not
collected, premiums collected by an Agent, or premiums placed in a premium
trust account) which have wrongfully not been remitted to Reinsurer.
19.3 If for any reason Reinsurer fails or is unable to administer the Policies
reinsured hereunder (whether the Agreement is still in effect or the
business is being run-off), Reinsurer shall appoint a party (reasonably
acceptable and approved by Company) to administer the business and
Reinsurer shall be responsible for 100% of the cost of said
administration. If return premiums or other funds need to be returned to
premium finance companies, policyholders or sub-agents, Reinsurer shall
pay these amounts if the successor or administrator does not.
19.4 Reinsurer shall not sue, or seek arbitration, against Company for any acts
of an Agent or for any monies which an Agent owes unless Company has
actually received those monies and has wrongfully not remitted them to
Reinsurer. Reinsurer shall indemnify Company for any Damages incurred by
reason of an Agent's acts or failure to act. Company is not responsible
for any commissions or other monies payable to an Agent in connection with
this Agreement.
19.5 In the event Reinsurer, or any Agent appointed or maintained pursuant to
this Agreement, binds Company for insurance coverage or insurance risks
which are not within the terms of business specified in Article I, whether
intentional or not, Reinsurer will take such actions as may be necessary
to reduce Company's exposure to such risks and to hold Company harmless
against any liability or loss which may be incurred by Company in excess
hereof. At Company's request, Reinsurer in accordance with applicable law
and policy terms, shall cancel or not renew any risk bound which is not in
conformance with this Agreement. Any such insurance coverage on insurance
risks bound which are not within the classes of business specified in
Article I, whether intentional or not, shall be 100% reinsured and subject
to this Agreement.
19.6 Reinsurer shall be solely responsible for the acts of the Agents. While
there are acts of the Agents which may be required by a regulatory agency
to be performed on behalf of Company, Reinsurer shall remain ultimately
responsible for such acts and will indemnify and hold Company completely
harmless for any Damages incurred by Company as respects such acts of the
Agents.
19.7 Reinsurer must send Company a report, within thirty (30) days of
determination, that a claim (i) involves a coverage dispute; (ii) involves
a demand in excess of policy limits; (iii) alleges bad faith; (iv) alleges
a violation of a state's deceptive trade practices laws; or (v) alleges a
violation of state insurance laws.
Article XX
Reinsurance Credit
In the event a state regulatory authority requires cancellation or disallows
credit for this reinsurance, Reinsurer will have 60 days to secure its
obligations under this Agreement via a security fund agreement to be executed by
Reinsurer and Company, which security fund agreement shall be in form and
content acceptable to Company. Company shall have no obligation to continue this
Agreement with Reinsurer if Company does not receive credit for the business
ceded to Reinsurer hereunder. It shall be Reinsurer's sole responsibility to
provide financial arrangements as may be required by any state regulatory
authority to assure that Company receives credit for the business ceded to
Reinsurer under this Agreement.
Article XXI
State Insurance Regulatory Matters
21.1 To avoid having uncollected premiums deemed non-admitted assets, Reinsurer
assumes full liability and responsibility for all premiums in the course
of collection. Company's liability to Reinsurer shall be only for any
premium actually collected by Company and wrongfully not transmitted to
Reinsurer.
21.2 Reinsurer shall, at no cost to Company, take actions (including, but not
limited to, modifications in how funds are handled and how accounts are
cleared and settled) and agree to those arrangements necessary to ensure
that Company suffers no adverse impact because of this reinsurance program
and is in compliance with all applicable laws and regulations promulgated
by any regulatory authority having jurisdiction over any Reinsured
Business.
21.3 To the extent required by applicable law, Reinsurer, if not licensed to
transact insurance or reinsurance in a Production State, agrees to submit
to the jurisdiction of a court within the United States, agrees to comply
with all requirements necessary to give such court jurisdiction over
Reinsurer, has designated an agent upon whom service of process may be
effected, and agrees to abide by the final decision of such court or an
appellate court to which a trial court decision may be appealed.
Article XXII
Arbitration
22.1 Any dispute arising with respect to this Agreement, whether arising before
or after termination hereof, which is not settled by mutual agreement of
the Parties, shall be submitted to arbitration in accordance with this
Article.
22.2 Within twenty (20) days from receipt of notice from one Party that an
arbitrator has been appointed, the other Party shall also name an
arbitrator. The two arbitrators shall choose a third arbitrator and shall
forthwith notify the Parties of such choice. If the two arbitrators cannot
agree upon the third arbitrator, each arbitrator shall nominate three
persons of whom the other shall reject two. The third arbitrator shall
then be chosen by drawing lots. If a Party fails to choose an arbitrator
within twenty (20) days after receiving the written request of the other
Party to do so, the latter shall choose both arbitrators, who shall choose
the third arbitrator. Each arbitrator shall be a present or former
property and casualty insurance company officer who is otherwise not
directly or indirectly affiliated with any Party to this Agreement.
22.3 The Party requesting arbitration (the "Petitioner") shall submit a brief
to the arbitrators within thirty (30) days after notice of the selection
of the third arbitrator. Upon receipt of the Petitioner's brief, the other
Party (the "Respondent") shall have thirty (30) days to file a reply
brief. On receipt of the Respondent's brief, the Petitioner shall have
twenty (20) days to file its rebuttal brief. Respondent shall have twenty
(20) days from the receipt of Petitioner's rebuttal brief to file its
rebuttal brief. The arbitrators may extend the time for filing of a brief
at the request of either Party.
22.4 The arbitrators shall consider this Agreement as an honorable engagement
rather than merely as a legal obligation, and shall be relieved of all
judicial formalities, and shall make their award with a view to effecting
the intent of the parties. The decision of the arbitrators shall be final
and binding upon the parties to this Agreement. Judgment may be entered
upon the final decision of the arbitrators in any court having
jurisdiction. Each Party shall bear the expenses of its own arbitrator and
shall jointly and equally bear the expenses of the third arbitrator and of
the arbitration. Any such arbitration shall be conducted pursuant to the
rules of the American Arbitration Association and shall take place in the
City of Fort Worth, Texas, unless some other location is mutually agreed
upon by the Parties.
Article XXIII
Savings Clause
If any law or regulation of any federal, state or local government of the United
States of America, or the ruling of officials having supervision over insurance
companies, should prohibit or render illegal this Agreement, or any portion
thereof, as to risks or properties located in the jurisdiction of such
authority, either Company or Reinsurer may upon written notice to the other
suspend or abrogate this Agreement insofar as it relates to risks or properties
located within such jurisdiction to such extent as may be necessary to comply
with such law, regulations or ruling. Such illegality, shall in no way affect
any other portion thereof, provided however, that Reinsurer or Company may
terminate or suspend this Agreement insofar as it relates to the business to
which such law or regulation may apply.
Article XXIV
Miscellaneous
24.1 THIS AGREEMENT HAS BEEN MADE AND ENTERED INTO IN THE STATE OF TEXAS AND
THE AGREEMENT SHALL BE SUBJECT TO AND CONSTRUED UNDER THE LAWS OF THE
STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAWS
THEREOF. This Agreement shall be deemed performable at Company's
administrative office in Fort Worth, Texas and it is agreed that the venue
of any controversy arising out of this Agreement, or any breach thereof,
shall be in Fort Worth, Texas.
24.2 All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered or mailed by first class
mail, postage prepaid, addressed as follows:
(a) If to Company, to: Acceptance Insurance Company
Suite 600 North
222 South 15th St.
Omaha, Nebraska 68102
Attention: Kenneth C. Coon
with a copy to: Kutak Rock
The Omaha Building
1650 Farnam Street
Omaha, Nebraska 68102-22186
Attention: Joe E. Armstrong, Esq.
(b) If to Reinsurer, to: [Millers Affiliate] Insurance Company
c/o Millers American Group, Inc.
300 Burnett Street
Fort Worth, Texas 76102
Attention: David N. Thompson
with a copy to: AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1700 Pacific Avenue
Dallas, Texas 75201-4675
Attention: Terry M. Schpok, P.C.
24.3 All acts and payments under this Agreement are performable and payable at
the offices of Reinsurer at the location listed above.
24.4 This Agreement shall be binding upon the Parties hereto, together with
their respective successors and permitted assigns. Reinsurer may assign
any of its rights or obligations under this Agreement without the prior
written consent of Company.
24.5 This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
24.6 This Agreement may be amended, modified or supplemented only by a written
instrument executed by all Parties hereto and referring specifically to
this Article 24.6.
24.7 With the exception of the Purchase Agreement and any other agreements
executed pursuant thereto, this Agreement is the entire agreement between
the Parties and supersedes any and all previous agreements, written or
oral, and amendments thereto.
24.8 A waiver by Company or Reinsurer of any breach or default by the other
Party under this Agreement shall not constitute a continuing waiver or a
waiver by Company or Reinsurer of any subsequent act in breach or of
default hereunder.
24.9 Headings used in this Agreement are for reference purposes only and shall
not be deemed a part of this Agreement.
24.10 The Parties hereto intend all provisions of this Agreement to be enforced
to the fullest extent permitted. Accordingly, should a court of competent
jurisdiction or arbitration panel determine that the scope of any
provision is too broad to be enforced as written, the Parties intend that
the court or arbitration panel should reform the provision to such
narrower scope as it determines to be enforceable under present or future
law; such provision shall be fully severable; this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable
provision were never a part hereof; and the remaining provisions of this
Agreement shall remain in full force and effect and shall not be affected
by the illegal, invalid, or unenforceable provision or by its severance.
24.11 Any offsets Reinsurer may take against amounts owed to Company, or any
offsets Company may take against amounts owed to Reinsurer, shall be
limited to amounts due and owing under this Agreement between Company and
Reinsurer.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, Company and Reinsurer have by their respective officers
executed this Agreement to be effective the ______ day of _______________, 1999.
COMPANY
[Acceptance Affiliate] Insurance Company
By: ___________________________________
Name: ___________________________________
Title: __________________________________
REINSURER
[Millers Affiliate] Insurance Company
By: ___________________________________
Name: ___________________________________
Title: __________________________________
GUARANTY OF FINANCIAL OBLIGATIONS
As of the Effective Date, The Millers Insurance Company guarantees the
performance of the financial obligations of Reinsurer under this Agreement,
subject to any defenses available to Reinsurer under the Agreement.
In witness whereof, The Millers Insurance Company has executed this Agreement to
be effective the _____ day of __________________, 1999.
THE MILLERS INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT D
QUOTA SHARE
AGREEMENT OF REINSURANCE
ADDENDUM NUMBER TWO (2)
This Addendum attaches to and forms a part of a certain Agreement of
Reinsurance between Phoenix Indemnity Insurance Company (hereinafter called the
"Company") and Acceptance Insurance Company (hereinafter called the "Reinsurer")
originally effective October 1, 1994 and amended by Addendum Number One (1) on
August 28, 1997.
As of the Effective Date, Company and Reinsurer agree as follows:
ARTICLE I - SCOPE OF AGREEMENT shall be deleted entirety and
replaced with the following:
As a condition precedent to the Reinsurer's obligations under this
Agreement, the Company shall cede to the Reinsurer 100% quota share of the
Net Written Premium and the liability for the Reinsured Business described
in this Agreement retained by the Company after all other facultative and
treaty reinsurance, and the Reinsurer shall accept such business as
reinsurance from the Company. The Company is to bear no business or
insurance risk whatsoever (save the risk of Reinsurer's insolvency).
ARTICLE III - LIABILITY OF THE REINSURER - the first paragraph of
Article III shall be deleted in its entirety and replaced with the
following:
The Reinsurer shall pay to the Company, with respect to each risk
and policy under the Business, 100% of the amount of net loss of the
Company ("Reinsured Business").
ARTICLE IV - DEFINITIONS as amended by Addendum Number One is
amended by deleting (a) BUSINESS and replacing it with the following:
(a) BUSINESS
This term shall mean fire, allied lines, homeowners, inland
marine, other liability, commercial automobile no-fault,
commercial automobile liability, commercial automobile
physical damage, burglary and dwelling fire business written
prior to July 1, 1999 by the Company on risks located in the
State of Utah; and surety and bond business written prior to
July 1, 1999 by the Company on risks wherever located and
serviced by the Reinsurer.
ARTICLE VII - REPORTS AND REMITTANCES will be deleted in its
entirety and replaced with the following:
MONTHLY
The Reinsurer shall report to the Company, within 45 days
after the close of each month:
(1) The reinsurance premium written for the month
by line of insurance, and
(2) The Company's portion of claims, losses, and adjustment
expense paid and outstanding during the month by line of
insurance and year of claim or loss.
QUARTERLY
On a quarterly basis, the Company shall calculate and invoice
the Reinsurer for premium taxes due. The amount due shall be
remitted by the Reinsurer within 30 days of receipt of the
invoice.
ARTICLE VIII - MANAGEMENT OF CLAIMS AND LOSSES shall be deleted in
its entirety and replaced with the following:
The Reinsurer shall investigate and settle or defend all claims and
losses and perform such other functions as it may determine proper for
servicing the Reinsured Business. When requested by the Company, the
Reinsurer shall permit the Company, at the expense of the Company, to be
associated with the Reinsurer in the defense or control of any claim,
loss, or legal proceeding which involves or is likely to involve the
Company. All settlements and payments of claims or losses by the
Reinsurer, whether under strict policy conditions or by way of compromise,
shall be binding on the Company, subject to the terms of this Agreement.
After the Effective Date, the Reinsurer shall be responsible for a) paying
all claims and amounts due under the Reinsured Business; b) paying all
premium refunds due under the Reinsured Business, and c) all expenses in
connection with the investigation, adjustment, appraisal or settlement of
all claims under the reinsured Business. Company shall deliver to
Reinsurer on the Effective Date of this Addendum all files and records, in
whatever form, pertaining to the Business including, but not limited to,
accounting, claims, underwriting, and legal. Such files and records shall
belong to and remain the property of Company until one (1) year after all
policies constituting the Reinsured Business shall have expired either by
cancellation or otherwise, and all outstanding losses and Adjustment
Expenses have been settled, at which time such files and records shall
become the property of and owned by Reinsurer.
ARTICLE XI -- SPECIAL ACCEPTANCES shall be deleted in its entirety.
ARTICLE XIII - OFFSET shall be deleted in its entirety.
ARTICLE XIV - INSPECTION OF RECORDS shall be deleted in its entirety
and replaced with the following:
The Reinsurer shall allow the Company to inspect, at reasonable
times, the records of the Reinsurer relevant to the business
reinsured under this Agreement, including Reinsurer files concerning
claims, losses, or legal proceedings which involve or are likely to
involve the Company.
ARTICLE XVII - COMMENCEMENT AND TERMINATION is deleted in it
entirety and replaced with the following:
1. The effective date of this Addendum is at 12:01 a.m. central
standard time, on ____________, 1999 (the "Effective Date").
This Addendum and Agreement shall remain continuously in force
until terminated according to the provisions set forth herein.
2. This Agreement may be terminated under any of the
following circumstances:
(a) Immediately by mutual consent of the Parties to
this Agreement.
(b) Immediately, upon written notice by Company, if
Reinsurer is found to be insolvent by any state
insurance department or court of competent jurisdiction,
or is placed in supervision, conservation,
rehabilitation, or liquidation, or has a receiver or
supervisor appointed.
(c) By Reinsurer, upon thirty (30) days written notice, if
Company is found to be insolvent by any state insurance
department or court of competent jurisdiction, or is
placed in supervision, conservation, rehabilitation or
liquidation, or has a receiver or supervisor appointed.
(d) By Company, immediately and automatically without prior
written notice should the Department of Insurance with
jurisdiction over the Reinsured Business require
cancellation or disallow credit for this reinsurance.
(e) By either Party, upon thirty (30) days written notice to
the other Party if the non-terminating Party:
(1) commits an intentionally wrongful or
fraudulent act material to the Agreement;
(2) materially breaches a provision of the Agreement
and fails to cure such breach within sixty (60)
days after written notice thereof; or
(3) is in a financially impaired condition under the
applicable law of any state having jurisdiction
over any of the Reinsured Business.
3. When this Agreement terminates for any reason, reinsurance
hereunder shall continue to apply to the Reinsured Business
in force at the time and date of termination until
expiration or cancellation of such business. Additionally,
the reinsurance hereunder shall continue to apply as to
policies constituting the Reinsured Business which must be
issued or renewed, as a matter of state law.
4. Upon termination of this Agreement, Reinsurer shall not be
relieved of or released from any obligation created by or
under this Agreement in relation to payment, expenses,
reports, accounting or handling, which relate to the
Reinsured Business. The Parties covenant and agree that they
will cooperate with each other in the handling of all such
run-off insurance business until all the Reinsured Business
shall have expired either by cancellation or under the terms
of such policies constituting the Reinsured Business and all
outstanding losses and loss adjustment expenses have been
settled. Upon termination of this Agreement, the Reinsurer
shall service the run-off of the Reinsured Business, and its
duties for such run-off shall include, but not be limited
to, handling all claims, and handling and servicing all
policies constituting the Reinsured Business through their
natural expiration, together with any policy renewals,
required to be made by provisions of applicable law, whether
or not the effective date of such renewal is subsequent to
the effective date of termination of this Agreement. All
costs and expenses associated with the handling of such
run-off business following the termination of this Agreement
shall be borne solely by Reinsurer. Reinsurer may appoint a
successor to handle the run-off, subject to Company's
approval (which shall not be unreasonably withheld), at no
cost to Company.
5. Except as otherwise provided in this Agreement, in the event
this Agreement is terminated, Reinsurer shall remain liable
to and shall, immediately upon request, reimburse Company
for any assessment made upon Company by a state insurance
guaranty association pursuant to the applicable provisions
of a state's insurance laws, which applies to the Reinsured
Business to the effective date of termination. Company shall
likewise remain liable for, and account to Reinsurer for any
recovery of such assessment under a state insurance guaranty
association, or any credit allowed against its premium tax
pursuant to applicable law.
6. The title and ownership of all undelivered policy forms,
books, and supplies containing Company's name related to the
Reinsured Business is in Company. Upon termination, these
materials shall be delivered immediately by Reinsurer to
Company, at Company's expense, without compelling Company to
resort to any legal proceedings to secure the property of
Company.
7. Upon termination of this Agreement, Reinsurer shall provide
Company with a final accounting and settlement of all
matters relating to the Reinsured Business.
ARTICLE XX - AGENTS BROKERS AND MANAGING GENERAL AGENTS shall be
added:
A. As of the Effective Date, the Reinsurer shall assume the obligation
to pay any broker, agent or managing general agent appointed by the Company
for the solicitation, sale, marketing or production of the Reinsured
Business, including payment of commissions, service fee and other
compensation that may be due such brokers, agents or managing general
agents according to the written agreements between Company and such
brokers, agents or managing general agents.
IN WITNESS WHEREOF, the parties have caused this Addendum to be executed
in duplicate this ____ day of _________, 1999.
ACCEPTANCE INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
PHOENIX INDEMNITY INSURANCE COMPANY
Attest:
By By
--------------------------------- ---------------------------------
Name Name
------------------------------- -------------------------------
<PAGE>
EXHIBIT E
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (this "Agreement") is made and entered into
this ____ day of ____________, 1999, by and between Acceptance Insurance
Company, a Nebraska insurance company ("Seller"), Acceptance Insurance Holdings
Inc., a Nebraska corporation ("AIH"), Acceptance Insurance Companies Inc., a
Delaware corporation ("AIC"), each of the Fronting Companies listed on the
signature page hereto, Millers American Group, Inc., a Texas corporation
("Purchaser"), and Phoenix Indemnity Insurance Company, an Arizona insurance
company (the "Company") and The Millers Insurance Company ("Millers").
PRELIMINARY STATEMENTS
A. Pursuant to that certain Purchase Agreement dated May 10, 1999 by and
among Seller, Purchaser and the Company, (the "Purchase Agreement"; capitalized
terms that are not defined in this Agreement shall have the meaning ascribed to
them in the Purchase Agreement) Purchaser has purchased from Seller all of the
capital stock of the Company.
B. Pursuant to the Purchase Agreement, the Company and Millers have entered
into Continuing State Agreements and Additional State Agreements with certain of
the Fronting Companies, Millers has entered into the Millers Agreement with
Redlands and the Company or Millers have entered into the Retrocession Agreement
with Acceptance Casualty. The Continuing State Agreements, the Additional State
Agreement, the Millers Agreement and the Retrocession Agreement are collectively
referred to herein as the "New Agreements."
C. Seller, AIH, AIC and the Fronting Companies (collectively, the
"Acceptance Group Members") have through direct or indirect ownership of the
Company, contractual arrangements and other business dealings with the Company
or issuance of Policies included in Nonstandard Business acquired confidential
information with respect to the Company and the insurance business covered by
the New Agreements (the "Business").
D. The Acceptance Group Members have agreed to execute and deliver this
Agreement as a condition and material inducement to the purchase of the Company
by Purchaser from Seller and the entering into of the New Agreements.
E. Purchaser desires to protect the value of the Company and the Business
by obtaining from the Acceptance Group Members this Agreement (a) to maintain
the confidentiality of certain information concerning the Company and the
Business and (b) to refrain from competing with the Company and the Millers
Business for a reasonable period of time, pursuant to the provisions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the respective
representations and warranties hereinafter set forth, and of the covenants and
agreements contained herein, the parties hereto agree as follows:
1. CONFIDENTIAL INFORMATION.
(a) For purposes of this Agreement, "Confidential Information" shall
mean any proprietary information, and any information which the Company
reasonably considers to be proprietary, pertaining to the Business or the
Company's past, present or prospective business secrets, methods or policies,
earnings, finances, security holders, lenders, key employees, nature of services
performed by the Company's sales administrative personnel, quality control
procedures or standards, procedures and methods of cost or installation of the
Company products or components, Policy Data, information relating to renewals
and expirations of Policies, underwriting guidelines, information relating to
arrangements with suppliers, the identity and requirements of arrangements with
customers or Agents, and the type, volume or profitability of the Business or
insurance written or reinsured by the Company, drawings, records, reports,
documents, manuals, techniques, procedures, formulae, ratings, design
information, data, statistics, trade secrets and all other information of any
kind or character relating to the Company or the Business, whether or not
reduced to writing.
(b) Each Acceptance Group Member acknowledges that such Acceptance
Group Member has access to Confidential Information and that such Confidential
Information constitutes valuable, special and unique property of the Company and
Millers, as the case may be. At no time shall any Acceptance Group Member (i)
use any Confidential Information in any manner adverse to the business interests
of the Company or Millers or (ii) disclose any such Confidential Information to
any person or entity for any reason or purpose whatsoever; provided that any
Acceptance Group Member may provide such Confidential Information in response to
judicial or administrative process or applicable governmental laws, rules,
regulations orders or ordinances, but only that portion of the documents or
information which, on the advise of counsel, is legally required to be
furnished, and provided that such Acceptance Group Member notifies the Company
and Millers of its obligation to provide such Confidential Information prior to
such disclosure and fully cooperates with the Company and Millers to protect the
confidentiality of such Confidential Information under applicable law. Upon the
request of the Company, each Acceptance Group Member shall deliver to the
Company all letters, notes, computer disks, software, notebooks, reports and
other materials which contain Confidential Information and which are in the
possession or under the control of such Acceptance Group Member, whether or not
prepared by such Acceptance Group Member.
2. AGREEMENT NOT TO SOLICIT CUSTOMERS, EMPLOYEES OR AGENTS. EAch Acceptance
Group Member agrees that for a period of 24 months following the Closing Date,
such Acceptance Group Member shall not, either alone or on behalf of any
business competing with the Company or the California Business directly or
indirectly (i) solicit or induce, or in any manner attempt to solicit or induce
any person employed by, or an agent of, the Company or Millers to terminate his
contract of employment or agency, as the case may be, with the Company, Millers
or the applicable Fronting Company or (ii) solicit, divert, or attempt to
solicit or divert, as a policyholder, agent, reinsurer, supplier or customer,
any person, concern or entity which, as of the Closing Date or during the one
year period prior thereto was a policyholder of an insurance policy written or
reinsured by the Company or included in the California Business, furnishes
products or services (including reinsurance) to, or receives products and
services from the Company or Millers , nor will any Acceptance Group Member
attempt to induce any policyholder, agent, reinsurer, supplier or customer to
cease being (or any prospective policyholder, agent, reinsurer, supplier or
customer not to become) a policyholder, agent, reinsurer, supplier or customer
of the Company or Millers . Each Acceptance Group Member agrees not to interfere
with the Company's or Millers' favorable relationship with its Agents (including
Agents of the applicable Fronting Company) and not to make disparaging or
negative remarks to Agents regarding the Company, Millers or Purchaser. This
provisions of Section 2(i) and (ii) shall not apply to any solicitation or
inducement directed at the public in general and/or found in general
publications.
3. NONCOMPETITION.
(A) RESTRICTED ACTIVITY. For the purposes of this Agreement,
"Restricted Activities" means issuing or reinsuring policies of Private
Passenger Automobile Liability (including No-Fault, Uninsured and Underinsured
Motorists, Medical Payments coverage, and Guest Passenger Liability, as
applicable) and Automobile Physical Damage except pursuant to the New
Agreements.
(B) COVENANT NOT TO COMPETE. Each Acceptance Group Member agrees that
for a period of 24 months from the date of the Closing Date, it shall not,
directly or indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operations or control of any business or enterprise engaged in the Restricted
Activities within the United States and its territories and possessions.
4. REASONABLE RESTRICTIONS. It is agreed by the parties that the foregoing
covenants in Sections 2 and 3 impose a reasonable restraint on the Acceptance
Group Members in light of the activities and business of the Company and the
California Business on the date of the execution of this Agreement. Each
Acceptance Group Member further acknowledges and agrees that this Agreement
constitutes a material inducement to Purchaser to purchase the Company and cause
the Company and Millers to enter into the New Agreements and that the sale of
the Company to Purchaser and the transactions contemplated by the Purchase
Agreement result in a material benefit to such Acceptance Group Member. Each
Acceptance Group Member further agrees that $50,000 of the Purchase Price paid
by Purchaser to Seller constitutes a Noncompete Fee to such Acceptance Group
Member of additional consideration for this Agreement and that such payment has
been paid by Purchaser to Seller as the agent for each Acceptance Group Member.
The distribution or allocation of such payment by Seller to each Acceptance
Group Member shall be the sole responsibility of Seller and Purchaser shall have
no obligation to pay or distribute such payment directly to any Acceptance Group
Member other than Seller.
CHANGE OF CONTROL. Notwithstanding any other provision of this Agreement
to the contrary, the provisions of Sections 2 and 3 of this Agreement shall not
apply to an unrelated third party acquiror of Control (as defined below) of an
Acceptance Group Member (an "Acquiror") engaged prior to or after its
acquisition of control of such Acceptance Group Member in activities that would
constitute Restricted Activities if conducted by an Acceptance Group Member;
provided however, that the provisions of this Agreement shall continue to apply
to such Acceptance Group Member that becomes controlled by such Acquiror and no
Confidential Information shall be provided to or used by such Acquiror. For the
purposes of this Agreement, "Control" means the possession, directly or
indirectly of the power to direct or to cause the direction of the management or
policies of any of the Acceptance Group Members, whether through the ownership
of voting securities, contract or otherwise.
5. NO VIOLATIONS. Each Acceptance Group Member represents and warrants to
Purchaser and the Company that such Acceptance Group Member has taken no actions
during the period from the date of the Purchase Agreement through the date of
this Agreement that would constitute a violation or breach of any of the terms
of this Agreement if this Agreement were in effect during such period except for
such actions as are permitted pursuant to the Purchase Agreement.
6. REMEDIES.
(a) In the event of a breach of any provision of this Agreement by an
Acceptance Group Member, Purchaser, the Company and Millers will be entitled to
recover any damages caused by reason of any such breach, together with any and
all proceeds, funds, payments and proprietary interests, of every kind and
description, arising from, or attributable to, such breach, and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any such breach or
threatened breach of the provisions of this Agreement and that Purchaser, the
Company and Millers may in their sole discretion, in addition to any other
available remedies, apply to any court of law or equity of competent
jurisdiction for and be entitled to specific performance and/or injunctive
relief in order to enforce or prevent any violation of the provisions of this
Agreement. Nothing herein shall be construed as prohibiting the Purchaser, the
Company or Millers from pursuing any other remedies available to the Purchaser,
the Company or Millers for such breach or threatened breach, including the
recovery of damages from the Acceptance Group Members.
(b) In the event of any breach of any of the covenants contained in
Sections 2 or 3 hereof, the periods provided in Sections 2 or 3, as the case may
be, shall be tolled (i.e., such periods shall not run during a breach of any
such covenant) during the time of such violation.
(c) In the event a party hereto brings an action under this Agreement,
the prevailing party in such dispute shall be entitled to recover from the
losing party all fees, costs and expenses of enforcing any right of such
prevailing party under or with respect to this Agreement, including without
limitation such reasonable fees and expenses of attorneys and accountants, which
shall include, without limitation, all fees, costs and expenses of appeals.
7. MATERIALITY OF PROVISIONS. Each Acceptance Group Member agrees that each
of the covenants and agreements contained in this Agreement are a material and
substantial part of the transactions contemplated by the Purchase Agreement.
8. SURVIVAL. The respective representations, warranties and agreements of
the parties set forth herein shall survive consummation of any transactions
contemplated by the Purchase Agreement.
9. INVALID PROVISIONS. If any provision hereof is held to be illegal,
invalid or unenforceable under present or future laws effective during the term
hereof, such provision shall be fully severable. This Agreement shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid or unenforceable provision there shall be added
automatically by Purchaser as a part hereof a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible and legal,
valid and enforceable.
10. WAIVER OF BREACH. The waiver of any party to this Agreement of a breach
of any provision of this Agreement shall not operate or be construed as a waiver
of any subsequent breach by any party.
11. ENFORCEABILITY. Each party to this Agreement represents and warrants to
the other party that this Agreement has been duly authorized, executed and
delivered by such party and constitutes a valid and binding obligation of such
party, enforceable against such party in accordance with its terms, except as
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting the enforcement of creditors' rights generally.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties hereto with respect to the subject matter hereof. No modification or
amendment of any of the terms, conditions or provisions of this Agreement may be
made otherwise than by written agreement signed by the parties hereto.
13. CAPTIONS. The captions, headings and arrangements used in this
Agreement are for convenience only and do not in any way limit or amplify the
terms and provisions hereof.
14. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors, and
assigns.
15. GOVERNING LAW; VENUE; WAIVER OF JURY TRIAL. This agreement shall be
construed in all respects under the laws of the state of Texas without regard to
the dictates of conflicts of laws thereof and the parties agree to submit to
exclusive jurisdiction and venue in the united states federal district court for
the northern district of Texas, Dallas division, or the district courts of
Dallas or Tarrant County, Texas. Each party hereto waives its right to trial by
jury in any dispute with the other party arising in connection with this
agreement.
16. NUMBER AND GENDER. Whenever the singular number is used herein, the
same shall include the plural where appropriate, and words of any gender shall
include each other gender where appropriate.
17. NOTICES. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be sent by certified mail, return
receipt requested (or by the most nearly comparable method if mailed from or to
a location outside of the United States), or by cable, telex, telegram or
facsimile transmission, or delivered by hand or by overnight or similar delivery
service, fees prepaid, to the party to whom it is to be given at the address of
such party set forth below or to such other address for notice as such party
shall provide in accordance with the terms of this section. Except as otherwise
specifically provided in this Agreement, notice so given shall, in the case of
notice given by certified mail (or by such comparable method) be deemed to be
given and received three business days after the time of certification thereof
(or comparable act), in the case of notice so given by overnight delivery
service, on the date of actual delivery, and, in the case of notice so given by
cable, telegram, facsimile transmission, telex or personal delivery, on the date
of actual transmission or, as the case may be, personal delivery.
If to any Acceptance Group Member: Acceptance Insurance Companies Inc.
222 South 15th Street
Suite 600 North
Omaha, Nebraska 68102-1616
Attn: Kenneth L. Coon, Chairman
J. Michael Gottschalk, General Counsel
Facsimile No. 402-345-9190
If to Purchaser, Company or Millers: Millers American Group, Inc.
300 Burnett Street
Fort Worth, Texas 76102
Attn: David N. Thompson
Facsimile No. 817-348-3480
18. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original for all purposes and all of which
shall be deemed collectively to be one agreement, but in making proof hereof it
shall be necessary to exhibit only one such counterpart.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SELLER:
ACCEPTANCE INSURANCE COMPANY,
a Nebraska insurance company
By: ___________________________________
Name: ___________________________________
Title: __________________________________
AIH:
ACCEPTANCE INSURANCE HOLDINGS INC.,
a Nebraska corporation
By: ___________________________________
Name: ___________________________________
Title: __________________________________
AIC:
ACCEPTANCE INSURANCE COMPANIES INC., a
Delaware corporation
By: ___________________________________
Name: ___________________________________
Title: __________________________________
FRONTING COMPANIES:
ACCEPTANCE INDEMNITY INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title: __________________________________
ACCEPTANCE CASUALTY INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title: __________________________________
REDLAND INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title: __________________________________
COMPANY:
PHOENIX INDEMNITY INSURANCE COMPANY, an
Arizona insurance company
By: ___________________________________
Name: ___________________________________
Title: __________________________________
PURCHASER:
MILLERS AMERICAN GROUP, INC.,
a Texas corporation
By: ___________________________________
Name: ___________________________________
Title: __________________________________
MILLERS:
THE MILLERS INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title: __________________________________
<PAGE>
EXHIBIT F
FORM OF RELEASE
The undersigned is [a direct or indirect shareholder or controlling person
of] [an officer or director of] [a Pooling Participant with] Phoenix Indemnity
Insurance Company, an Arizona insurance company (the "Company"), which is a
party to that certain Purchase Agreement (the "Purchase Agreement"), dated as of
May 10, 1999, by and between Millers American Group, Inc. (the "Purchaser"),
Acceptance Insurance Company (the "Seller") and the Company. This Release is
executed and delivered pursuant to Section 6.15 of the Purchase Agreement, in
consideration of the execution, delivery and performance of the Purchase
Agreement by the parties thereto. Capitalized terms not otherwise defined herein
have the meaning ascribed to such terms as set forth in the Purchase Agreement.
The undersigned, for himself or itself, his heirs, personal
representatives, successors and assigns, does hereby release, acquit, discharge
and covenant not to sue the Company, its officers, directors, agents, attorneys,
employees, successors and assigns, with respect to all past, present and future
claims, expenses, losses, liabilities and obligations of any nature whatsoever,
whether accrued or contingent, known or unknown, whether sounding in contract,
tort or otherwise, based in whole or in any material part upon facts and
circumstances in existence as of the Closing Date other than the following:
[Identify specific agreements as applicable.]
This Release may not be amended or terminated and no provision hereof may
be waived, absent a writing executed by the undersigned and the Company.
_______________________________________
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EXHIBIT G
PURCHASER'S COUNSEL OPINION
A. Opinion from Akin, Gump, Strauss, Hauer, & Feld, L.L.P.
1. The Purchaser is a Texas corporation duly organized and validly existing
and in good standing under the laws of the State of Texas. The Purchaser has all
requisite power and authority to enter into the Agreement, to perform the
obligations thereunder and to consummate the transactions contemplated thereby.
All corporate acts and other proceedings required to be taken by the Purchaser
to authorize the execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated thereby have been duly and
properly taken. The Agreement has been duly executed and delivered by the
Purchaser and (assuming that it has been duly executed and delivered by all
parties thereto other than the Purchaser) constitutes legal, valid and binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms except as enforcement thereof may be limited by applicable
liquidation, conservatorship, bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or similar laws affecting the enforcement of
creditor's rights generally from time to time in effect and except that
equitable remedies are subject to judicial discretion.
B. Opinion from Angela Robinson, General Counsel
1. The execution and delivery of the Agreement by the Purchaser does not,
and the consummation of the transactions contemplated thereby and compliance
with the terms thereof shall not, conflict with, or result in any violation of
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any material
obligation or to loss of a benefit under, or result in the creation of any lien,
claim, encumbrance, security interest, option, charge or restriction of any kind
upon any of the properties or assets of the Purchaser under, any provision of
(i) the Articles of Incorporation or bylaws of the Purchaser, (ii) to the best
of my knowledge, any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement or arrangement to which the Purchaser is
a party or by which any of its respective properties or assets are bound or
(iii) to the best of my knowledge, any judgment, order or decree, or statute,
law, ordinance, rule or regulation applicable to the Purchaser or its properties
or assets other than, in the case of clauses (ii) and (iii) above, any such
items that, individually or in the aggregate, would not have a Material Adverse
Effect on the ability of the Purchaser to consummate the transactions
contemplated thereby. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Authority or any other Person is required to be obtained or made by or with
respect to the Purchaser in connection with the execution, delivery and
performance of the Agreement or the consummation of the transactions
contemplated thereby, other than (i) compliance with and filings under the HSR
Act, if applicable, (ii) compliance with and filings under any applicable state
insurance or insurance holding company laws and (iii) those which if not
obtained would have no Material Adverse Effect on the ability of the Purchaser
to consummate the transactions contemplated thereby.
<PAGE>
EXHIBIT H
SELLER'S COUNSEL OPINION
A. Opinion from Kutak Rock
1. Seller is an insurance company duly organized, validly existing and in
good standing under the laws of the State of Nebraska. The Company is a property
and casualty insurance company duly organized, validly existing and in good
standing under the laws of the State of Arizona. The Company, Seller and each
affiliate of Seller that is a party to any Transaction Document (an "Affiliate")
have all requisite corporate power and authority to execute and deliver the
Transaction Documents to which it is a party, to perform its obligations
thereunder and to consummate the transactions contemplated thereby. Based solely
on a review of the certificates of authority and having no knowledge to the
contrary, we are of the opinion that the Company is duly qualified as a foreign
insurance Company to do business, and is in good standing with authority to
write the lines of insurance business listed in the Annual Statement in each
jurisdiction listed in the Annual Statement.
2. The execution, delivery and performance of the Transactions Documents,
and the consummation of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action on the part of the Seller,
the Company and the applicable Affiliate. The Transaction Documents have been
duly executed and delivered by a duly authorized officer of the Seller, the
Company and the applicable Affiliate, as the case may be, and constitute legal,
valid and binding obligations of the Seller, the Company and such Affiliate
enforceable against the Seller, the Company and such Affiliate in accordance
with their terms except as enforcement thereof may be limited by applicable
liquidation, conservatorship, bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws effecting creditors' rights and except
that equitable remedies are subject to judicial discretion.
3. The Company has full corporate power and authority necessary to enable
it to own, lease or otherwise hold its properties and assets and to carry on its
business as presently conducted.
4. On the Closing Date, assuming the Purchaser purchases the Shares in good
faith and without notice of the existence of any lien or adverse claim, the
Purchaser will have acquired the rights of a bona fide purchaser free of any
adverse claim.
5. The authorized capital stock of the Company consists of 500,000 shares
of Common Stock, par value $6.00 per share, of which 500,000 are duly authorized
and validly issued and outstanding, fully paid and nonassessable and held solely
by Seller. Except for the Shares, there are no shares of capital stock or other
equity securities of the Company outstanding. To the best best of our knowledge,
none of the Shares have been issued in violation of, and none of the Shares are
subject to, any purchase option, call, right of first refusal, preemptive,
subscription or similar rights under any provision of applicable law, the
articles of incorporation or by-laws of the the Company, any contract, agreement
or instrument to which the Company is subject, bound or a party or otherwise or
federal or state securities laws. To the best of our knowledge, there are no
outstanding warrants, options, rights, "phantom" stock rights, agreements,
convertible or exchangeable securities or other commitments pursuant to which
the Company is or may become obligated to issue, sell, purchase, return,
register or redeem any shares of capital stock or other securities of the
Company. There are no equity securities of the Company reserved for issuance for
any purpose. Seller has good and valid title to all the outstanding shares of
capital stock of the Company free and clear of any liens. There are no
outstanding bonds, debentures, notes or other indebtedness having the right to
vote on any matters on which stockholders of the Company may vote. No corporate
proceedings or consent on the part of any direct or indirect stockholder of the
Seller is necessary for the execution and delivery of the Transaction Documents
and the consummation by the Seller, the Company and the applicable Affiliate of
the transactions contemplated thereby.
6. Except as set forth in Schedule 3.12 to the Agreement, to the best of
our knowledge there are no lawsuits, claims, actions, arbitrations, grievances,
proceedings or investigations pending, or threatened, against the Company or any
of its respective properties, assets, operations or businesses, at law, in
equity, or before any federal, state, municipal or other governmental or
nongovernmental department, commission, board, bureau, agency or
instrumentality, foreign or domestic. There are no outstanding or unsatisfied
judgments, orders, decrees or stipulations to which the Company is a party,
which involve the transactions contemplated herein, or which would have an
adverse effect upon the business, business prospects, assets or financial
condition of the Company. Except as set forth in Schedule 3.12 to the Agreement,
neither the Company nor the Seller is a party or subject to or in default under
any judgment, order, injunction or decree of any Governmental Authority or
arbitration tribunal applicable to it or any of its respective properties,
assets, operations or business. Except as set forth in Schedule 3.12 to the
Agreement, there is no lawsuit or claim by the Company or the Seller pending, or
to the best of our knowledge, contemplated by the Company to initiate against
any other Person. Except as set forth in Schedule 3.12 to the Agreement, to the
best of our knowledge, there is no pending or threatened investigation of the
Company or the Seller by any Governmental Authority.
B. Opinion from J. Michael Gottschalk, General Counsel
7. The execution and delivery of the Transaction Documents by the Seller,
the Company and each Affiliate do not, and the consummation of the transactions
contemplated thereby and compliance with the terms thereof will not, conflict
with, or result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a benefit under, or result in the
creation of any lien, claim, encumbrance, security interest, option, charge or
restriction of any kind upon any of the properties or assets of the Seller, the
Company or such Affiliate under any provision of (i) the Articles of
Incorporation or bylaws of the Seller, the Company or such Affiliate, (ii) to
the best of my knowledge, any note, bond, mortgage, indenture, deed of trust,
license, lease, contract, commitment, agreement or arrangement to which the
Seller, the Company or such Affiliate is a party or by which any of its
respective properties or assets are bound or (iii) to the best of my knowledge,
any judgment, order or decree, or statute, law, ordinance, rule or regulation
applicable to the Seller, the Company or such Affiliate or its properties or
assets other than, in the case of clauses (ii) and (iii) above, any such items
that, individually or in the aggregate, would not have a Material Adverse Effect
on the Company or on the ability of the Seller, the Company or such Affiliate to
consummate the transactions contemplated thereby. No consent, approval, license,
permit, order or authorization of, or registration, declaration or filing with,
any Governmental Authority or other Person is required to be obtained or made by
or with respect to the Seller, the Company or any Affiliate in connection with
the execution, delivery and performance of the Transaction Documents or the
consummation of the transactions contemplated thereby other than (i) compliance
with and filings under the HSR Act, if applicable, (ii) compliance with and
filings under any applicable state insurance or insurance holding company laws
and (iii) those which if not obtained would have no Material Adverse Effect on
the Company or on the ability of the Seller, the Company or such Affiliate to
consummate the transactions contemplated thereby.
8. Schedule 3.26 to the Agreement sets forth a true and complete list of
all licenses, permits and authorizations issued or granted to the Company by
Governmental Authorities that are necessary or desirable for the conduct of the
business of the Company, and such licenses, permits and authorizations are in
full force and effect. Except as set forth in Schedule 3.26 to the Agreement,
all such licenses, permits and authorizations are validly held by the Company
and the Company has complied in all respects with all terms and conditions
thereof and the same will not be subject to suspension, modification, revocation
or nonrenewal as a result of the execution and delivery of the Transaction
Documents or the consummation of the transactions contemplated thereby. To the
best of my knowledge, the Company has complied with all laws, rules,
regulations, ordinances, codes, licenses, clearances, permits, franchises,
grants, authorizations, easements, consents, certificates and orders relating to
its properties or applicable to its business, including but not limited to,
labor, equal employment opportunity, insurance regulatory matters, zoning or
building regulations, consumer protection, environmental, securities and
antitrust laws and regulations, and no Governmental Authority or other Person
has notified the Company or the Seller that any violation of any such laws or
regulations exists. I have no knowledge of any pending or threatened action or
proceeding that could result in a modification or termination of laws or
regulations which modification or termination would adversely affect the
Company.
