<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported):
February 22, 1999
ZENITH NATIONAL INSURANCE CORP.
(Exact name of registrant as specified in its charter)
Delaware 1-9627 95-2702776
(State or other (Commission File No.) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
21255 Califa Street
Woodland Hills, California 91367-5021
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code:
(818)713-1000
------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On February 22, 1999, Zenith Insurance Company, a wholly owned
subsidiary of Registrant ("Zenith Insurance"), and Nationwide Mutual Insurance
Company ("Nationwide"), entered into a Stock Purchase Agreement (the
"Agreement") pursuant to which Zenith Insurance agreed to sell to Nationwide,
all of the issued and outstanding capital stock of CalFarm Insurance Company
("CalFarm"), a wholly owned subsidiary of Zenith Insurance. The purchase price
under the Agreement is $272 million cash, subject to adjustment in certain
circumstances.
The closing of the transaction is subject to regulatory approvals and
customary conditions.
A copy of the Agreement and Zenith's press release, dated February 22,
1999, relating to the transaction are attached hereto as exhibits and
incorporated herein by reference.
ITEM 7. EXHIBITS.
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Exhibit No. Description
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10.1 Stock Purchase Agreement, dated as of February 22, 1999, between
Zenith Insurance Company and Nationwide Mutual Insurance Company
99.1 Press Release of Zenith National Insurance Corp., dated February 22,
1999
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ZENITH NATIONAL INSURANCE CORP.
March 9, 1999
By: /s/ Fredricka Taubitz
-----------------------------
Fredricka Taubitz
Executive Vice President
and Chief Financial Officer
2
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STOCK PURCHASE AGREEMENT
Dated as of February 22, 1999
Between
Zenith Insurance Company
and
Nationwide Mutual Insurance Company
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TABLE OF CONTENTS
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SECTION 1. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. PURCHASE OF THE SHARES; PURCHASE PRICE; AND CLOSING. . . . . . . . 9
2.1 Purchase of the Shares . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.4 Purchase Price Adjustment. . . . . . . . . . . . . . . . . . . . .10
2.5 1998 Pro Forma Balance Sheet . . . . . . . . . . . . . . . . . . .14
2.6 Real Estate Valuation Adjustment . . . . . . . . . . . . . . . . .14
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . .15
3.1 Capacity of Seller . . . . . . . . . . . . . . . . . . . . . . . .15
3.2 Organization and Qualification . . . . . . . . . . . . . . . . . .16
3.3 Authority Relative to this Agreement . . . . . . . . . . . . . . .16
3.4 No Violation; Governmental Filings . . . . . . . . . . . . . . . .16
3.5 Capitalization of CalFarm; Title to the Shares . . . . . . . . . .17
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .18
3.7 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . .19
3.9 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
3.10 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . .20
3.11 Absence of Certain Changes or Events . . . . . . . . . . . . . . .21
3.12 Real Estate. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
3.13 Registrations. . . . . . . . . . . . . . . . . . . . . . . . . . .22
3.14 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . . . .22
3.15 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
3.16 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . .23
3.17 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
3.18 Broker's or Finder's Fees. . . . . . . . . . . . . . . . . . . . .29
3.19 Operations Insurance . . . . . . . . . . . . . . . . . . . . . . .30
3.20 Cancellations. . . . . . . . . . . . . . . . . . . . . . . . . . .30
3.21 Tangible Property; Liens and Security Interest . . . . . . . . . .31
3.22 Tax Returns and Taxes. . . . . . . . . . . . . . . . . . . . . . .31
3.23 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . .32
3.24 Interests of Officers. . . . . . . . . . . . . . . . . . . . . . .33
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3.25 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.26 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . .34
3.27 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . .34
3.28 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . .34
3.29 Labor Relations and Employment . . . . . . . . . . . . . . . . . .36
3.30 Transactions with Affiliates . . . . . . . . . . . . . . . . . . .37
3.31 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
3.32 Intercompany Agreements. . . . . . . . . . . . . . . . . . . . . .38
3.33 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
3.34 No Misleading or Untrue Statements . . . . . . . . . . . . . . . .38
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER. . . . . . . . . . . . . .39
4.1 Capacity of Buyer. . . . . . . . . . . . . . . . . . . . . . . . .39
4.2 Validity and Execution of Agreement. . . . . . . . . . . . . . . .39
4.3 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . .39
4.4 Broker's or Finder's Fees. . . . . . . . . . . . . . . . . . . . .40
4.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
4.6 Investment Representation. . . . . . . . . . . . . . . . . . . . .40
4.7 Section 338(h)(10) Election. . . . . . . . . . . . . . . . . . . .41
4.8 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
SECTION 5. SELLER'S PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . .41
5.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
5.2 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . .41
5.3 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . .42
5.4 Full Access; Delivery of SAP Statements. . . . . . . . . . . . . .44
5.5 Notice of Developments . . . . . . . . . . . . . . . . . . . . . .44
5.6 Exclusivity. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5.7 Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . . . . . .44
5.8 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
5.9 Maintenance of Records . . . . . . . . . . . . . . . . . . . . . .45
5.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . .45
5.11 Termination of Intercompany Agreements; Related Transfers. . . . .45
5.12 Continued Effectiveness of Representations and Warranties. . . . .45
5.13 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . .46
5.14 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . .46
5.15 Transition Services Agreement. . . . . . . . . . . . . . . . . . .46
SECTION 6. BUYER'S PRE-CLOSING COVENANTS. . . . . . . . . . . . . . . . . . .46
6.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
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6.2 Notice of Developments . . . . . . . . . . . . . . . . . . . . . .46
6.3 Hart-Scott-Rodino Filing . . . . . . . . . . . . . . . . . . . . .47
6.4 Notices and Consents . . . . . . . . . . . . . . . . . . . . . . .47
6.5 Transition Services Agreement. . . . . . . . . . . . . . . . . . .47
6.6 CalFarm's Business . . . . . . . . . . . . . . . . . . . . . . . .47
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
SECTION 7. CONDITIONS TO OBLIGATIONS OF SELLER. . . . . . . . . . . . . . . .48
7.1 Accuracy of Representations and Warranties . . . . . . . . . . . .48
7.2 Performance by Buyer . . . . . . . . . . . . . . . . . . . . . . .48
7.3 Legal Challenge. . . . . . . . . . . . . . . . . . . . . . . . . .48
7.4 Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
7.5 Material Changes . . . . . . . . . . . . . . . . . . . . . . . . .49
7.6 Depooling Agreement and Related Transfers. . . . . . . . . . . . .49
SECTION 8. CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . .49
8.1 Accuracy of Representations and Warranties . . . . . . . . . . . .49
8.2 Performance by Seller. . . . . . . . . . . . . . . . . . . . . . .49
8.3 Approvals and Other Consents . . . . . . . . . . . . . . . . . . .49
8.4 Legal Challenge. . . . . . . . . . . . . . . . . . . . . . . . . .50
8.5 Depooling Agreement and Related Transfers. . . . . . . . . . . . .50
8.6 Farm Bureau Sponsorship Agreement. . . . . . . . . . . . . . . . .50
SECTION 9. ACTIONS AT CLOSING BY SELLER . . . . . . . . . . . . . . . . . . .50
SECTION 10. ACTIONS AT CLOSING BY BUYER. . . . . . . . . . . . . . . . . . . .51
SECTION 11. POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . .52
11.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
11.2 Litigation Support . . . . . . . . . . . . . . . . . . . . . . . .52
11.3 Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . .52
11.4 Non-Competition. . . . . . . . . . . . . . . . . . . . . . . . . .53
11.5 Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . .54
11.6 Employee and Director Contracts, Agreements and Commitments. . . .54
11.7 Credited Service Under Employee Plans. . . . . . . . . . . . . . .55
11.8 Employee Welfare Benefit . . . . . . . . . . . . . . . . . . . . .55
11.9 Settlement of Intercompany Balances. . . . . . . . . . . . . . . .55
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SECTION 12. TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . .56
12.1 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
12.2 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . .57
12.3 Refunds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
12.4 Contests . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
12.5 Time of Payment. . . . . . . . . . . . . . . . . . . . . . . . . .59
12.6 Cooperation and Exchange of Information. . . . . . . . . . . . . .59
12.7 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . . . . . .60
12.8 Section 338(h)(10) Election. . . . . . . . . . . . . . . . . . . .61
12.9 Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . .62
SECTION 13. TERMINATION AND REMEDIES . . . . . . . . . . . . . . . . . . . . .63
13.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . .63
SECTION 14. GENERAL SURVIVAL; INDEMNIFICATION MEDIATION AND LITIGATION . . . .64
14.1 Survival of Representations. . . . . . . . . . . . . . . . . . . .64
14.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . .64
14.3 Mediation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
14.4 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .67
SECTION 15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .68
15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
15.2 Execution in Counterparts; Binding Effect. . . . . . . . . . . . .68
15.3 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .68
15.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . .68
15.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
15.6 Titles and Headings. . . . . . . . . . . . . . . . . . . . . . . .70
15.7 Successors and Assigns; Beneficiaries. . . . . . . . . . . . . . .70
15.8 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . .70
15.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . .70
15.10 Waivers and Amendments . . . . . . . . . . . . . . . . . . . . . .71
15.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .71
15.12 Succession and Assignment. . . . . . . . . . . . . . . . . . . . .71
15.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .71
15.14 Specific Performance . . . . . . . . . . . . . . . . . . . . . . .71
15.15 Public Announcements . . . . . . . . . . . . . . . . . . . . . . .72
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ANNEX A Depooling Agreement
ANNEX B Valuation Source of Certain Securities
ANNEX C Form of Employment Agreement
ANNEX D List of Employees
</TABLE>
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<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of this 22nd day of February, 1999 by Zenith Insurance Company, a
California corporation ("Seller"), and Nationwide Mutual Insurance Company, an
Ohio mutual insurance company ("Buyer").
BACKGROUND
A. Seller currently owns all of the outstanding shares of common stock (the
"Shares") of CalFarm Insurance Company, a California corporation
("CalFarm").
B. Seller now desires to sell the Shares and Buyer desires to purchase the
Shares on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual terms,
conditions and other agreements set forth herein, intending to be legally bound,
the parties hereby agree as follows:
SECTION 1.
CERTAIN DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"ACCOUNTING REFEREE" shall have the meaning as set forth in Section
2.4 of this Agreement.
"AFFILIATE" means a Person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with another Person or
<PAGE>
beneficially owns or has the power to vote or direct the vote of ten percent
(10%) or more of the voting stock (or any other form of general partnership,
limited partnership or voting equity interest in the case of a Person that is
not a corporation) of such Person; except that, in the case of Seller and its
Subsidiaries, "Affiliate" shall not be deemed to include Reliance Insurance
Company or any Person (not including Seller and its Subsidiaries) who might
otherwise be deemed to be an Affiliate of Reliance Insurance Company. For
purposes of this definition, "control," including the terms "controlling,"
and "controlled," means the power to direct the management and policies of a
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or credit agreement, as trustee, partner or executor
or otherwise.
"AGREEMENT" shall mean collectively this "Stock Purchase Agreement"
including the Disclosure Schedule and Annexes hereto.
"ANNUAL STATEMENT" shall have the meaning as set forth in Section 3.8
of this Agreement.
"ASSETS" shall mean, as to a Person, all rights, titles, franchises
and interests in and to every species of property, real, personal and mixed, and
choses in action thereunto belonging, including, but not limited to,
Environmental Permits, Investment Assets, Intellectual Property, Contracts,
Licenses, privileges and all other assets whatsoever, tangible or intangible, of
such Person.
"AUDITED CLOSING BALANCE SHEET" shall have the meaning as set forth in
Section 2.4(a) of this Agreement.
"BENEFIT ARRANGEMENT" shall mean any material employment, severance
or similar contract, arrangement or policy, or any plan or arrangement
(whether or not written) providing for severance benefits, insurance coverage
(including any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits, retirement
benefits, deferred compensation, fringe benefits, perquisites for directors,
executives, or other employees (including, but not limited to, company
automobiles, clubs, vacations, child care, parenting, sabbatical, life
insurance, or other types of insurance), profit sharing, bonuses,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits.
"BENEFIT PLAN" shall mean either an Employee Plan or a Benefit
Arrangement(s).
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"BUSINESS" shall mean, as to a Person, the business, operations,
activities and affairs of such Person.
"BUSINESS DAY" shall mean any day other than Saturday, Sunday or other
day on which banks are authorized or required to be closed by law in Ohio or
California.
"BUYER MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, financial condition, and results of operations of Buyer considered
as a whole.
"CAL-AG" means Cal-Ag Insurance Services, Inc., a California
corporation.
"CALFARM AGENCY" means CalFarm Insurance Agency, a California
corporation.
"CALFARM MATERIAL ADVERSE EFFECT" means (i) any material adverse
effect on the business, financial condition, and results of operations of
CalFarm considered as a whole or (ii) any loss or Liability which reduces
CalFarm's statutory surplus by more than $6 million.
"CLOSING" shall have the meaning as set forth in Section 2.3 of the
Agreement.
"CLOSING DATE" shall have the meaning as set forth in Section 2.3 of
this Agreement.
"CLOSING BALANCE SHEET" shall have the meaning set forth in Section
2.4 of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPUTER SOFTWARE" shall mean any and all computer software
consisting of sets of statements or instructions to be used, directly or
indirectly, in a computer, and may include some or all of the following:
(i) source codes, object codes and natural language codes thereof and component
modules thereof, (ii) versions thereof, (iii) screen displays and designs
thereof and (iv) user, technical, training and other documentation relating to
any of the foregoing.
"CONFIDENTIALITY AGREEMENT" shall mean the letter agreement dated
November 2, 1998 between Buyer and Zenith National Insurance Corp.
"CONSENT(S) OR FILING(S)" shall have the meaning as set forth in
Section 3.4 of this Agreement.
"CONTRACT" or "CONTRACTS" shall mean a contract, agreement,
commitment, indenture, note, bond, mortgage, license, lease, assignment,
arrangement or understanding, whether written or oral.
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<PAGE>
"DEPOOLING AGREEMENT" shall mean Amendment No. 4 to the Reinsurance
and Pooling Agreement between Seller, CalFarm, ZNAT Insurance Company and Zenith
Star Insurance Company substantially in the form and on the terms of the form
agreement attached hereto as Annex A.
"DISCLOSURE SCHEDULE(s)" shall mean the schedules of even date
herewith from Seller to Buyer containing various disclosures with respect to
Seller and to the representations and warranties of Seller as set forth in this
Agreement.
"EMPLOYEE BENEFIT PLAN" has the meaning as defined in Section 3(3) of
ERISA.
"EMPLOYEE PENSION BENEFIT PLAN" has the meaning set forth in Section
3(2) of ERISA.
"EMPLOYEE PLAN" means any (i) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan; (ii)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan; (iii) qualified defined benefit retirement plan
or arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan); (iv) Employee Welfare Benefit Plan; or (v) material fringe
benefit plan or program.
"EMPLOYEE WELFARE BENEFIT PLAN" has the meaning set forth in Section
3(1) of ERISA.
"ENVIRONMENTAL CLAIM" shall mean any investigation, notice of
violation, demand, allegation, action, suit, injunction, judgment, order,
consent decree, penalty, fine, lien, proceeding, or claim (whether
administrative, judicial or private in nature) arising: (i) pursuant to, or
in connection with, an actual or alleged violation of any Environmental Law;
(ii) in connection with any Hazardous Material or actual or alleged activity
associated with any Hazardous Material; (iii) from any abatement, removal,
remedial, corrective or other response action in connection with any
Hazardous Material, pursuant to any decree of any federal, state or local
governmental authority; or (iv) from any actual or alleged damage, injury,
threat or harm to health, safety, natural resources, or the environment.
Environmental Claim shall not include claims for coverage by an insured.
"ENVIRONMENTAL, HEALTH AND SAFETY LAWS" or "ENVIRONMENTAL LAWS"
means the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 ET SEQ. ("CERCLA"), and the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ.
("RCRA") and the Occupational Safety and Health Act of 1970, 29 U.S.C.
Section 651 ET SEQ. ("OSHA"), each as amended, together with all other
applicable laws (including rules, regulations, codes, judgments, orders,
decrees and rulings thereunder) of federal, state and local governments (and
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<PAGE>
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, such as laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground water, or lands
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes.
"ENVIRONMENTAL PERMIT" shall mean any permit, license, variance,
certificate, consent, letter, clearance, closure, exemption, authorization,
decision or action or approval required to be obtained from any federal, state
or local governmental authority with jurisdiction over and pursuant to any
Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, 29 U.S.C. Section 1001 ET SEQ.
"ERISA AFFILIATE" shall mean, as to any Person, (i) any corporation
which is a member of a controlled group of corporations within the meaning of
Section 414(b) of the Code, which includes such Person, (ii) any trade or
business (whether or not incorporated) which is a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the
Code, which includes such Person, and (iii) any member of an affiliated service
group within the meaning of Sections 414(m) and (o) of the Code of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is a member.
"GAAP" shall mean generally accepted accounting principles in effect
in the United States as of the date thereof.
"GOVERNMENTAL ENTITY" or "GOVERNMENTAL ENTITIES" shall mean a court,
executive office, legislature, governmental agency, commission or
administrative, regulatory or self-regulatory authority or instrumentality,
domestic or foreign.
"HAZARDOUS MATERIALS" include substances (i) which require remediation
under any Environmental Laws; or (ii) which are or become defined as a
"hazardous waste," "hazardous substance," pollutant or contaminant under any
Environmental Laws; or (iii) which are toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic or mutagenic; or (iv) which contain
petroleum hydrocarbons, polychlorinated biphenyls, asbestos, asbestos-containing
materials or urea formaldehyde.
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"HSR ACT" or "HSR" shall mean the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, 15 U.S.C. Section 18a, and the rules
and regulations promulgated thereunder from time to time.
"INSURANCE CONTRACT" shall mean any Contract of insurance, including,
but not limited to, reinsurance contracts.
"INSURANCE LICENSE" shall mean any License granted by a Governmental
Entity to transact insurance or reinsurance business.
"INTELLECTUAL PROPERTY" shall mean ownership or use rights in and to
the following: trademarks, service marks, brand names, certification marks,
trade dress and trade names, good will associated with the foregoing and
registrations and any extension, modification or renewal of any such
registration or application; patents, applications for patents (including but
not limited to divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; trade secrets and rights in any jurisdiction to limit the use or
disclosure thereof by any Person; writings and other works, protected by
copyright registrations, in any jurisdiction, and any renewals or extensions
thereof; provided that Intellectual Property shall include Computer Software.
"INTERCOMPANY POOLING AGREEMENT" means the Intercompany Pooling
Agreement, as amended, effective June 30, 1998, among the Seller, CalFarm, ZNAT
Insurance Company and Zenith Star Insurance Company.
"INVESTMENT ASSETS" shall mean bonds, notes, debentures, mortgage
loans, collateral loans and all other instruments of indebtedness, stocks,
partnership or joint venture interests and all other equity interests
(including, but not limited to, equity interests in Subsidiaries or other
Affiliates), real estate and leasehold and other interests therein, certificates
issued by or interests in trusts, cash on hand and on deposit, personal property
and interests therein and all other assets acquired for investment purposes.
"IRS" shall mean the Internal Revenue Service.
"KNOWLEDGE OF SELLER" and "BEST OF SELLER'S KNOWLEDGE" and "TO THE
BEST KNOWLEDGE OF SELLER," or words to that effect, shall mean the actual
knowledge of any of the following officers of the Seller and/or CalFarm:
Stanley R. Zax, Fredricka Taubitz, John J. Tickner, Hyman J. Lee, Jr., William
J. Owen, Westley M. Heyward, Philip M. Joffe, Kari L. Van Gundy, Stanley K.
Miyao, James
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H. Townsend, Nancy J. Friedhoff, Paul M. Williams, Franklin V. Adams, Frank
J. Kotarba, Craig C. Thomson, Sara E. Martin, Susan J. McGinness and Diane F.
Harvell.
"LAW" shall mean a law, statute, ordinance, rule or regulation enacted
or promulgated, or Order issued or rendered, by any Governmental Entity.
"LIABILITY" shall mean a liability, obligation, claim or cause of
action (of any kind or nature whatsoever, whether absolute, accrued, contingent
or other, and whether known or unknown), including, but not limited to, any
liability, obligation, claim or cause of action arising pursuant to or as a
result of an Insurance Contract or pursuant to any Environmental Claim.
"LICENSE" shall mean a license, certificate of authority, franchise,
permit or other authorization to transact business, whether granted by a
Governmental Entity or other Person.
"LIEN(S)" shall mean any lien, pledge, mortgage, security interest,
lease, charge, option, right of first refusal, easement, servitude, transfer
restriction under any shareholder or similar agreement, or any encumbrance.
"MULTIEMPLOYER PLAN" shall have the meaning set forth in Section 3(37)
of ERISA.
"NOTICE OF DISAGREEMENT" shall have the meaning as set forth in
Section 2.4 of this Agreement.
"ORDER" shall mean an order, writ, ruling, judgment, directive,
injunction or decree of any arbitrator or Governmental Entity.
"PERMITTED LIENS" shall mean, as to a party hereto: (i) any Lien
that is set forth in the public records or in title reports or title
insurance binders that have been made available to the other party relating
to any interest in the real property; (ii) Liens for water and sewer charges
and current Taxes not yet due and payable or being contested in good faith;
(iii) Liens arising from securities-lending activities undertaken in the
ordinary course of business of a Person; (iv) other Liens (including, but not
limited to, mechanic's, courier's, worker's, repairer's, materialman's,
warehouseman's and other similar Liens) arising or incurred in the ordinary
course of business as would not, individually or in the aggregate, materially
adversely affect the value of, or materially adversely interfere with the use
of, the property subject thereto; and (v) Liens arising or resulting from any
action taken by the other party hereto or any of its respective Subsidiaries.
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"PERSON" shall mean an individual, corporation, partnership,
association, joint stock company, limited liability company, Governmental
Entity, business trust, unincorporated organization or other legal entity.
"1997 PRO FORMA BALANCE SHEET" shall have the meaning as set forth in
Section 2.5 of this Agreement.
"1998 PRO FORMA BALANCE SHEET" shall have the meaning as set forth in
Section 2.5 of this Agreement.
"PURCHASE PRICE" shall have the meaning as set forth in Section 2.2 of
this Agreement.
"QUARTERLY STATEMENTS" shall have the meaning as set forth in Section
3.9 of this Agreement.
"REAL PROPERTY" shall mean any real property in which CalFarm or any
of its Subsidiaries holds a Lien or owns an interest, or in the management of
which CalFarm or any Subsidiary of CalFarm actively participates.
"REGISTRATIONS" shall have the meaning as set forth in Section 3.13 of
this Agreement.
"RELATED TRANSFERS" shall have the meaning as set forth in
Section 2.4(a) of this Agreement.
"SAP" shall mean statutory accounting practices prescribed or
permitted by the California Department of Insurance, applied on a consistent
basis.
"SAP STATEMENTS" shall have the meaning as set forth in Section 3.8 of
this Agreement.
"SEC" shall mean the Securities and Exchange Commission.
"SELLER" shall have the meaning as set forth in the preamble.
"SELLER MATERIAL ADVERSE EFFECT" means any material adverse effect on
the business, financial condition, and results of operations of Seller
considered as a whole.
"SUBSIDIARY" or "SUBSIDIARIES" means, with respect to any Person on a
given date, any other Person of which a majority of the voting power of the
equity securities or equity interests is owned directly or indirectly by such
Person.
"SURPLUS" shall have the meaning set forth in Section 2.4(d) of this
Agreement.
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"TARGET AMOUNT" shall have the meaning as set forth in Section 2.4(d)
of this Agreement.
"TAX" or "TAXES" means all Federal, state, local and foreign (whether
imposed by a country or political subdivision or authority thereunder) income,
gross receipts, excise, sales, use, value added, employment, franchise, profits,
property, ad valorem or other taxes, fees, stamp taxes and duties, assessments
or charges of any kind whatsoever (whether payable directly or by withholding),
together with any interest and any penalties, additions to tax or additional
amounts imposed by any taxing authority (foreign or domestic) with respect
thereto.
"TAX RETURN" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TAXING AUTHORITY" means the IRS or any other governmental authority
(domestic or foreign) responsible for the imposition of any Tax.
"WARN ACT" shall mean the Worker Adjustment and Retraining
Notification Act of 1988, as amended, 29 U.S.C. Section 2101 ET SEQ.
SECTION 2.
PURCHASE OF THE SHARES; PURCHASE PRICE; AND CLOSING
2.1 PURCHASE OF THE SHARES. On the terms and subject to the
conditions set forth in this Agreement, at the Closing (hereinafter defined)
Seller agrees to sell, transfer, assign, convey and deliver to Buyer, and Buyer
agrees to purchase, acquire and accept from Seller, all of the Shares.
2.2 PURCHASE PRICE. The consideration for the Shares shall be Two
Hundred Seventy-Two Million Dollars ($272,000,000) (the "Purchase Price"). The
Purchase Price shall be subject to adjustment prior to Closing as provided in
Section 2.6 hereof and, after Closing, pursuant to Section 2.4 hereof. At
Closing, Buyer will pay to Seller (i) the Purchase Price and (ii) interest, if
any, on such Purchase Price from (but excluding) the Closing Date to (and
including) the date of physical transfer of funds and delivery of the Shares at
a rate equal to the federal funds rate reported in the Wall Street Journal on
the last Business Day prior to the Closing Date to the extent that the
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physical transfer of funds is made on a day other than the Closing Date, each
by bank wire transfer in immediately available funds to accounts designated
in writing by Seller to Buyer.
2.3 CLOSING. The consummation of the purchase and sale of the
Shares ("Closing") shall be effective at 12:01 a.m., California time, on the
first day of the calendar month following the month in which all conditions
to the respective obligations of the parties set forth in Sections 7 and 8
hereof (other than those that are intended to be satisfied only at the
Closing) have been satisfied (except that if such satisfaction of conditions
occurs less than two Business Days preceding the end of the calendar month,
the Closing shall be effective at 12:01 a.m., California time, on the first
day of the second following calendar month) (such effective date and time
being referred to herein as the "Closing Date"). The physical transfer of
funds and delivery of the Shares shall occur at 11:00 a.m., New York time, on
the first Business Day of the same calendar month as the Closing Date at the
offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street, New
York, New York, or at such other time, date and place as shall be mutually
agreed upon by the parties. Each party hereto agrees to use commercially
reasonable efforts promptly to satisfy the conditions to Closing to be
satisfied by it in order to expedite the Closing.
2.4 PURCHASE PRICE ADJUSTMENT. (a) As soon as practicable after
the Closing, but in no event later than sixty (60) days after the Closing,
Seller shall cause to be prepared and delivered to Buyer: (x) an unaudited
statutory balance sheet of CalFarm as of the end of the calendar month
immediately preceding the Closing Date (the "Closing Balance Sheet"), which
balance sheet shall reflect (i) the transfer of assets and liabilities to and
from CalFarm as a result of the Depooling Agreement (including the net change
in the tax liabilities of CalFarm related to the consummation of the
transactions contemplated by the Depooling Agreement), (ii) the transfer to
CalFarm by Seller of all the outstanding shares of common stock of CalFarm
Agency prior to the Closing Date, and (iii) the transfer by Seller to CalFarm
pursuant to an assignment or sublease of all of Seller's rights and
obligations under the office building lease between Puente Hills Business
Center II, a California limited partnership, and Seller dated as of February
16, 1996, as amended as of September 11, 1998 ((i), (ii) and (iii) above
being collectively referred to herein as the "Related Transfers"); PROVIDED,
HOWEVER, that no effect shall be given to any Tax Liability paid or to be
paid by CalFarm, Cal-Ag or
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CalFarm Agency as a result of the Elections provided for in Section 12.8; and
(y) a report indicating the market value as of the Closing Date of the
Investment Assets of CalFarm which market value shall be determined by
Merrill Lynch Pricing Services, except as otherwise provided on Annex B
hereto. The Closing Balance Sheet shall (i) be prepared in accordance with
SAP (other than the requirement thereof for footnote disclosure), (ii) be
consistent with the preparation of the SAP Statements (as defined in Section
3.8 hereof) and (iii) be based on, and give effect to, the methods,
procedures, assumptions and transfers used in the preparation of the 1998 Pro
Forma Balance Sheet. Buyer shall cooperate with Seller in the preparation of
the Closing Balance Sheet and shall provide Seller with access to CalFarm's
premises and shall make available to Seller such employees, information
systems, books and records of CalFarm as Seller may reasonably request to
prepare the Closing Balance Sheet. At the option and expense of Buyer, upon
notice to Seller prior to Closing, the Closing Balance Sheet shall be audited
by PricewaterhouseCoopers LLP (such Closing Balance Sheet as so audited being
referred to herein as the "Audited Closing Balance Sheet") and which Audited
Closing Balance Sheet shall be delivered to Buyer upon completion of the
audit. If the Closing Balance Sheet is so audited, the Audited Closing
Balance Sheet shall be final and binding on the parties and shall be deemed
to be the Closing Balance Sheet for purposes of subsection (b) below, except
that (x) the amount of unpaid losses and loss adjustment expenses reflected
on the unaudited Closing Balance Sheet shall be the amount of unpaid losses
and loss adjustment expenses and (y) the amount of accrued liabilities
representing the difference between the estimated Purchase of Goodwill
liability under the agreements with traditional agents (formerly known as
"exclusive agents") and the estimated amount recoverable from the future sale
of books of business to purchasing agents (the "Agent Business Accrual
Liability") reflected on the unaudited Closing Balance Sheet shall be the
amount of Agent Business Accrual Liability used for purposes of determining
the Surplus on the Closing Balance Sheet pursuant to subsection (b) below;
PROVIDED THAT, to the extent that Buyer disagrees with any such amount solely
as its relates to events and developments since January 1, 1999 reflected in
the SAP results of operations of CalFarm from January 1, 1999 to and
including the date of the Closing Balance Sheet, such disagreement shall be
resolved pursuant to subsection (c) below.
(b) Subject to the remainder of this subsection (b) and subsection
(c) below, within twenty (20) Business Days after delivery to Buyer of the
Closing Balance Sheet, whichever of the
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following is applicable shall occur: (i) if Surplus (hereinafter defined) as
shown by the Closing Balance Sheet exceeds the Target Amount (hereinafter
defined), Buyer shall pay to Seller, in immediately available funds, a sum
equal to the amount, if any, by which Surplus as shown by the Closing Balance
Sheet exceeds the Target Amount (hereinafter defined), or (ii) if the Surplus
as shown by the Closing Balance Sheet is less than the Target Amount, Seller
shall pay to Buyer in immediately available funds, a sum equal to the amount,
if any, by which Surplus as shown by the Closing Balance Sheet is less than
the Target Amount, with interest thereon in either case as hereinafter
described. The amount due shall include interest on such excess or
deficiency for the period from (but excluding) the Closing Date to (and
including) the date of payment calculated at the rate per annum, compounded
semiannually, equal to the rate of interest announced by Bank One Columbus
N.A. as its prime rate or base rate in effect on the Closing Date.
(c) The dispute resolution procedures set forth in this subsection
(c) shall only apply if there is no Audited Closing Balance Sheet except as
otherwise provided in subsection (a) above. If Buyer in good faith disagrees
with any amounts reflected in the Closing Balance Sheet, then Buyer shall
deliver notice of such disagreement (the "Notice of Disagreement") to Seller
within ten (10) Business Days after delivery of the Closing Balance Sheet to
Buyer, which Notice of Disagreement shall set forth in reasonable detail the
basis for Buyer's disagreement; PROVIDED, HOWEVER, that (x) the amount
reflected on the Closing Balance Sheet for unpaid losses and loss adjustment
expenses shall not be subject to disagreement by Buyer except to the extent
that such disagreement relates to the events and developments since January
1, 1999 that are reflected in the SAP results of operations of CalFarm from
January 1, 1999 to and including the date of the Closing Balance Sheet, (y)
any amounts reflected as liabilities on the Closing Balance Sheet that relate
to the items listed on Section 3.15(b) of the Disclosure Schedule shall not
be subject to any disagreement by Buyer and (z) the amounts reflected on the
Closing Balance Sheet as Agent Business Accrual Liability shall not be
subject to any disagreement by Buyer except to the extent that such
disagreement relates to events and developments since January 1, 1999 that
are reflected in the SAP results of operations of CalFarm from January 1,
1999 to and including the date of the Closing Balance Sheet. If Buyer has
not delivered to Seller a Notice of Disagreement by the day specified in the
preceding sentence, then the Closing Balance Sheet shall be final and binding
upon Seller and Buyer as of the
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next following day. Upon delivery of a Notice of Disagreement, payment of
any amount payable by Seller or Buyer pursuant to subsection (b) shall be
delayed until all disagreements between Seller and Buyer relating to the
Closing Balance Sheet have been resolved as provided in this subsection (c),
and upon such resolution such payment shall be made by Seller or Buyer, as
the case may be, within five (5) Business Days thereafter. If Buyer delivers
a Notice of Disagreement to Seller, Seller and Buyer shall attempt to resolve
all disagreements between them relating to the Closing Balance Sheet, but if
they are not able to do so within twenty (20) Business Days after the date of
delivery of the Notice of Disagreement, then within five (5) Business Days
thereafter Seller and Buyer shall select a nationally recognized accounting
firm with an expertise in SAP and no material relationship with Buyer, Seller
or any of their Affiliates and mutually acceptable to Buyer and Seller (the
"Accounting Referee") to resolve such disagreements and adjust the amounts
reflected in the Closing Balance Sheet in accordance with its determination.
Within sixty (60) days after Buyer and Seller select the Accounting Referee,
the Accounting Referee shall deliver its written determination to Buyer and
Seller, which determination shall be final, binding and conclusive upon
Seller and Buyer. The scope of the Accounting Referee's engagement shall not
require an audit of the Closing Balance Sheet and shall be limited to
resolution of those items of disagreement that are set forth in the Notice of
Disagreement and that Seller and Buyer have not previously resolved, but only
as they affect the calculation of Surplus. The fees, costs and expenses of
the Accounting Referee, if any, will be shared equally by Seller and Buyer.
(d) As used in this Section 2.4, the following terms shall have
the meanings set forth below: (i) "SURPLUS" shall mean policyholder surplus
determined in accordance with SAP; and (ii) "TARGET AMOUNT" shall mean Eighty
Million Dollars ($80,000,000), (w) less the amount of any judgment paid by
CalFarm or any increase in the amount of unpaid losses and loss adjustment
expenses reflected on the Closing Balance Sheet from the amount reflected on
the 1998 Pro Forma Balance Sheet that relate to the items listed on Section
3.15(b) of the Disclosure Schedule, (x) less the amount of the increase, if
any, in the net tax liability of CalFarm as of the date of the Closing
Balance Sheet related to the consummation of the transactions contemplated by
the Depooling Agreement and (y) less the amount, if any, by which the market
value as of the Closing Date of the Investment Assets as shown on the report
delivered by Seller pursuant to Section 2.4(a), is greater
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than the statutory book value of the Investment Assets as reflected on the
Closing Balance Sheet or plus the amount, if any, by which the market value
as of the Closing Date of the Investment Assets as shown on the report
delivered by Seller pursuant to Section 2.4(a), is less than the statutory
book value of the Investment Assets as reflected on the Closing Balance Sheet.
2.5 1998 PRO FORMA BALANCE SHEET. Within 30 days after the date
of this Agreement, Seller will provide Buyer with a pro forma statutory
balance sheet of CalFarm at December 31, 1998 (the "1998 Pro Forma Balance
Sheet"), which pro forma balance sheet shall give effect to the Related
Transfers as if they occurred on December 31, 1998 and which will be prepared
by Seller in accordance with SAP and on a basis consistent with the pro forma
statutory balance sheet of CalFarm at December 31, 1997 (the "1997 Pro Forma
Balance Sheet") that was delivered to the Buyer by Seller prior to the date
hereof. Within 15 days after receipt of the 1998 Pro Forma Balance Sheet,
Buyer will notify Seller of the items, if any, which it believes in good
faith are not properly reflected on the 1998 Pro Forma Balance Sheet;
PROVIDED, HOWEVER, that (x) the amount reflected on the 1998 Pro Forma
Balance Sheet for unpaid losses and loss adjustment expenses shall not be
subject to challenge by Buyer, (y) any amounts reflected as liabilities on
1998 Pro Forma Balance Sheet that relate to the items listed on Section
3.15(b) of the Disclosure Schedule and (z) the amount of the Agent Business
Accrual Liability reflected on the 1998 Pro Forma Balance Sheet, shall not be
subject to challenge by Buyer. In such an instance, Seller and Buyer agree
to negotiate and develop a 1998 Pro Forma Balance Sheet that is reasonably
acceptable to both Seller and Buyer within 20 days after Seller receives
notice from Buyer of any disputed items. If Buyer does not notify Seller as
to any disputed items within 15 days after receipt from Seller of the 1998
Pro Forma Balance Sheet, the 1998 Pro Forma Balance Sheet provided by the
Seller shall be deemed to be acceptable to Buyer.
2.6 REAL ESTATE VALUATION ADJUSTMENT. Within 30 Business Days
after the date of this Agreement, Seller will provide Buyer with a copy of an
appraisal report prepared by Giannelli, Jarrette & Filipiak, and signed by an
MAI certified appraiser, on the real property of CalFarm located at 1601
Exposition Boulevard, Sacramento, CA 95815 (the "Sacramento Property") which
will set forth an estimated current market valuation for the Sacramento
Property (the "Appraised Value"). Unless Buyer disputes the Appraised Value
within 15 Business Days after receipt of such appraisal
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report, the Purchase Price payable at Closing pursuant to Section 2.2 of this
Agreement shall be increased by the amount, if any, by which the Appraised
Value exceeds $16,360,840. If Buyer disputes the Appraised Value by notice
to Seller within 15 Business Days after receipt of the appraisal report,
Buyer will at its own cost and expense engage the services of another MAI
certified appraiser of Buyer's choice familiar with the Sacramento commercial
real estate market to render a second appraisal report of the estimated
current market value for the Sacramento Property (the "Buyer Appraised
Value"). Buyer shall deliver to Seller within 30 Business Days after
delivering notice to Seller that Buyer disputes the Appraised Value a copy of
the second appraisal report containing the Buyer Appraised Value. If Buyer
and Seller are unable to reach agreement as to the amount of the purchase
price increase, if any, due to Buyer under this Section 2.6 within 15
Business Days after receipt by Seller of the report containing the Buyer
Appraised Value, Buyer and Seller shall select another MAI certified
appraiser familiar with the Sacramento commercial real estate market and no
material relationship with Buyer, Seller or any of their Affiliates to render
a third appraisal report of the estimated current market value for the
Sacramento Property (the "Final Appraised Value"). Upon determination of the
Final Appraised Value and delivery to Buyer and Seller of a copy of the third
appraisal report, the purchase price payable at Closing shall be increased by
the amount, if any, by which the Final Appraised Value exceeds $16,360,840.
The Final Appraised Value shall be final and binding on the parties. The
cost of the third appraisal report shall be shared equally by Buyer and
Seller.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer, effective as of the date
hereof, as follows:
3.1 CAPACITY OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder.
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3.2 ORGANIZATION AND QUALIFICATION. (a) Each of CalFarm, Cal-Ag
and CalFarm Agency is a corporation duly incorporated, validly existing and
in good standing under the Laws of the State of California and has all
requisite power and authority to conduct its business as it is currently
being conducted. Each of CalFarm, Cal-Ag and CalFarm Agency is duly
qualified to do business, and is in good standing, in the respective
jurisdictions where the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, except where the failure
to be so qualified or in good standing would not, individually or in the
aggregate, reasonably be expected to have a CalFarm Material Adverse Effect.
(b) Copies of the articles of incorporation and bylaws of each of
CalFarm, Cal-Ag and CalFarm Agency have heretofore been delivered to Buyer
and such copies are true, accurate and complete as of the date hereof. Each
of CalFarm, Cal-Ag and CalFarm Agency does not have any other constitutive
documents, other than its articles of incorporation and bylaws.
3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been or will be duly and validly authorized by the board of
directors of Seller and all necessary corporate action on the part of Seller.
(b) This Agreement has been duly and validly executed and delivered
by Seller and, assuming this Agreement constitutes a legal, valid and binding
agreement of Buyer, constitutes a legal, valid and binding agreement of Seller
enforceable against Seller in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.
3.4 NO VIOLATION; GOVERNMENTAL FILINGS. (a) Except as set forth in
Section 3.4 of the Disclosure Schedule, the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not: (i) violate or conflict with the articles of incorporation or the
bylaws (or similar organizational documents) of Seller; (ii) violate, conflict
with, or result in a breach of any provisions of, or constitute a default (or an
event which,
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with notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the assets of Seller under any of the terms,
conditions or provisions of any Contract to which Seller is a party or by
which its Assets are bound which involves the payment or receipt of amounts
equal to or in excess of $250,000; or (iii) violate any Environmental Permit,
Law or License that would have a material impediment to the consummation of
the transactions contemplated hereby.
(b) Except as set forth on the Section 3.4 Disclosure Schedule,
and for (i) the approval of the California Insurance Department; and (ii) the
filings required under the HSR Act and the expiration or other termination of
any waiting period, no consent, approval, permit, notice, Order or
authorization of, or registration, application, declaration or filing (each a
"Consent or Filing") with any Person is required with respect to CalFarm,
Cal-Ag and CalFarm Agency in connection with the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby,
except for such Consents or Filings the failure of which to make or obtain
would not, individually or in the aggregate, prevent or be a material
impediment to the consummation of the transactions contemplated hereby.
3.5 CAPITALIZATION OF CALFARM; TITLE TO THE SHARES. (a) The
authorized capital stock of CalFarm consists of 52,000 shares of common
stock, $25.00 par value, of which 52,000 shares are on the date hereof, and
will be at Closing, issued and outstanding. The authorized capital stock of
Cal-Ag consists of 500 shares of Common Stock, no par value, of which 100
shares are on the date hereof, and will be at Closing, issued and
outstanding. The authorized capital stock of CalFarm Agency consists of
1,000 shares of common stock, no par value, of which 1,000 shares are on the
date hereof, and will be at Closing, issued and outstanding. The Shares have
been validly issued, are fully paid and nonassessable, and have not been
issued in violation of any preemptive rights of any stockholders. The Shares
are beneficially owned and held of record by Seller, free and clear of any
Lien. The shares of capital stock of Cal-Ag and CalFarm Agency have been
validly issued, are fully paid and non-assessable and have not been issued in
violation of any preemptive rights of any stockholder.
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(b) Except as set forth in Section 3.5 of the Disclosure Schedule,
there are no outstanding subscriptions, options, warrants, calls, rights,
convertible securities, obligations to make capital contributions or
advances, or voting trust arrangements, shareholder agreements or other
agreements, commitments or understandings of any character relating to the
issued or unissued capital stock of CalFarm, Cal-Ag and CalFarm Agency or
preferred securities, or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock.
3.6 SUBSIDIARIES. CalFarm does not, and will not on the Closing
Date, either directly or indirectly, beneficially own or hold of record a more
than 10% equity interest in any other Person except for Cal-Ag and CalFarm
Agency.
3.7 NO CONFLICT. Except as set forth in Section 3.7 of the
Disclosure Schedule, neither the execution and delivery of this Agreement nor
the performance of the transactions contemplated hereby will: (a) (i)
violate or conflict with the articles of incorporation or bylaws of CalFarm,
Cal-Ag and CalFarm Agency, (ii) result in or constitute a default (or an
event that, with notice or lapse of time or both, would constitute a
default), breach or violation of any Contract or instrument (including
options, warrants or convertible securities) which relates to the voting of,
restricts the transfer of, requires the issuance or sale, or creates rights
in any Person with respect to the Shares, or (iii) violate any lease,
license, promissory note, conditional sales contract, commitment, indenture,
mortgage, deed of trust, or other agreement, instrument or arrangement to
which CalFarm, Cal-Ag or CalFarm Agency is a party or by which the assets of
CalFarm, Cal-Ag or CalFarm Agency are bound except for such violations that
would not, individually or in the aggregate, reasonably be expected to have
an adverse monetary effect on CalFarm, Cal-Ag or Cal Farm Agency individually
or in the aggregate of $150,000 or more; (b) permit any party to terminate
any agreement or to accelerate the maturity of any indebtedness or other
material obligation of CalFarm, Cal-Ag or CalFarm Agency involving the
payment by CalFarm, Cal-Ag or CalFarm Agency during any year individually or
in the aggregate of $150,000 or more; (c) create or impose any Lien on any of
the assets or properties of CalFarm, Cal-Ag or CalFarm Agency except for
Permitted Liens and Liens that would not reasonably be expected to have a
monetary effect on CalFarm, Cal-Ag or CalFarm Agency individually or in the
aggregate of $150,000 or more; or (d) violate any Law or Order affecting
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CalFarm, Cal-Ag or CalFarm Agency except for such violations that would not,
individually or in the aggregate, reasonably be expected to have a CalFarm
Material Adverse Effect.
3.8 FINANCIAL STATEMENTS. (a) CalFarm has previously delivered to
Buyer true and complete copies of the following (collectively, the "SAP
Statements"):
(i) the Annual Statements for CalFarm filed with the California
Department of Insurance as of and for the years ended December 31, 1996 and 1997
with all exhibits and schedules thereto (each, an "Annual Statement");
(ii) the Quarterly Statements for CalFarm as of and for the calendar
quarters ended March 31, June 30 and September 30, 1998 with all exhibits and
schedules thereto; and
(iii) any supplemental or separate statutory annual statements or
quarterly statements for CalFarm for any of the periods ended December 31, 1996
and 1997 that are filed with any insurance Governmental Entity.
(b) CalFarm has previously delivered to Buyer true and complete
copies of the balance sheets of Cal-Ag and CalFarm Agency at December 31, 1998
prepared in accordance with GAAP (collectively, the "GAAP Statements").
(c) Since December 31, 1998, CalFarm has filed all SAP Statements
required to be filed with or submitted to the appropriate regulatory
authorities, except for such filings or submissions for which the failure to so
file or submit would not have a CalFarm Material Adverse Effect.
(d) Each SAP Statement complied (and, as to SAP Statements filed
after the date of this Agreement, will comply) in all material respects with
all applicable Laws when so filed, and all material deficiencies with respect
to any such SAP Statement, of which Seller has Knowledge, have been cured or
corrected. The SAP Statements (and the notes related thereto) were prepared
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(and, as to SAP Statements filed after the date of this Agreement, will be
prepared) in accordance with SAP and present (and, as to SAP Statements filed
after the date of this Agreement, will present) fairly, in all material
respects, in conformity with SAP the statutory assets, statutory liabilities,
surplus and other funds of CalFarm as of the respective dates thereof and the
related summaries of operations, changes in capital and surplus and cash flow
of CalFarm for the respective periods covered thereby.
3.9 RESERVES. The aggregate actuarial reserves and other
actuarial amounts held in respect of losses and loss adjustment expenses with
respect to Insurance Contracts of CalFarm as established or reflected in
CalFarm's December 31, 1997 Annual Statement and its Quarterly Statement for
the calendar quarter ended September 30, 1998 or as will be established or
reflected in its December 31, 1998 Annual Statement: (a) were, or will be,
determined and fairly stated in accordance with the Statement of Principles
Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves
("SOP"), as adopted by the Casualty Actuarial Society in May 1998,
consistently applied; (b) met, or will meet, the requirements of the
insurance Laws of California and all other applicable jurisdictions; and (c)
were, or will be, in the reasonable judgment of Seller or CalFarm, adequate
at such date in accordance with SOP consistently applied. The actuarial
opinion delivered to CalFarm's Board of Directors with respect to the 1997
Annual Statement is true, complete and accurate in all material respects.
CalFarm owns Assets that qualify as admitted assets under California
insurance Laws in an amount at least equal to the sum of its statutory
reserves and other similar amounts. Notwithstanding Sections 3.9 and Section
3.10 or any other provision of this Agreement, Seller makes no representation
or warranty as to the adequacy of CalFarm's reserves for losses and loss
adjustment expenses as of any date.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule or in the SAP Statements, CalFarm,
does not have a material liability or obligation of any nature, whether
absolute, accrued, contingent or otherwise, of a type and nature that is
required to be disclosed on a balance sheet prepared in accordance with SAP
which were not fully reported, reflected or reserved for in the balance sheet
(or the notes thereto) included in the most recent Annual Statement or
quarterly SAP Statements referred to in Section 3.8 above, except (i)
liabilities incurred since the date of such balance sheet in the ordinary
course of business and
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(ii) liabilities related to the termination and depooling of CalFarm's
participation in the Intercompany Pooling Agreement. Except as set forth in
Section 3.10 of the Disclosure Schedule or the GAAP Statements, neither
Cal-Ag nor CalFarm Agency has any material liability or obligation of any
nature, whether absolute, accrued, contingent or otherwise, of a type and
nature that is required to be disclosed on a balance sheet prepared in
accordance with GAAP which were not fully reported, reflected or reserved for
in the GAAP Statements (or the notes thereto), except liabilities incurred
since the date of such balance sheet in the ordinary course of business.
3.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
Section 3.11 of the Disclosure Schedule and except for the Related Transfers,
since December 31, 1998, CalFarm has operated its Business in the ordinary
course and there has not been since December 31, 1998: (a) except in the
ordinary course of business, any change in the business or financial
condition of CalFarm, Cal-Ag or CalFarm Agency which could reasonably be
expected to have an adverse monetary effect on CalFarm, Cal-Ag or CalFarm
Agency of $5,000,000 or more; (b) any damage, destruction or loss to real or
personal property (other than normal wear and tear and not including the
consequential effects of such damage, destruction or loss to any such
property) which would have an adverse monetary effect on CalFarm, Cal-Ag or
CalFarm Agency of $5,000,000 or more and which is not covered by insurance,
subject to applicable deductibles; (c) except in the ordinary course of
business or as otherwise contemplated by this Agreement, any sale, lease,
mortgage, pledge or encumbrance of any properties or assets material to
CalFarm; (d) any increase, except as consistent with past practice, of
$25,000 or more, in the wages, salaries, compensation, pension or other
benefits payable to any employee of CalFarm except in connection with the
employment agreements contemplated by Section 5.13; or (e) any change in
accounting methods or in the maintenance or method of preparation of books
and records.
3.12 REAL ESTATE. Section 3.12 of the Disclosure Schedule lists
all real property owned by CalFarm or leased or subleased to CalFarm.
Neither Cal-Ag nor CalFarm Agency owns or leases any real property. The
Sacramento Property is owned free and clear of all Liens except Permitted
Liens. Seller has made or caused CalFarm to make available to Buyer correct
and complete copies of the leases and subleases listed in Section 3.12 of the
Disclosure Schedule together with any
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amendments thereto through the date of this Agreement. With respect to each
lease and sublease listed, and except as disclosed in Section 3.12 of the
Disclosure Schedule: (a) the lease or sublease is legal, valid, binding and
in full force and effect; (b) no other party to the lease or sublease is in
breach or default that would give rise to a claim for monetary damages in
excess of $100,000, and no event has occurred which, with notice or lapse of
time, would constitute such a breach or default or permit termination,
modification, or acceleration; (c) CalFarm has not assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold; and (d) to the Knowledge of Seller, all facilities
leased or subleased hereunder have received all approvals of Governmental
Entities required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules and
regulations and are supplied with utilities and other services necessary for
the operation of said facilities as operated.
3.13 REGISTRATIONS. Except as set forth in Section 3.13 of the
Disclosure Schedule, each of CalFarm, Cal-Ag and CalFarm Agency has all
registrations, licenses, permits and other authorizations issued by or
required from any Governmental Entity or regulatory agency (state, local,
federal or foreign) and reasonably necessary for its business as presently
conducted ("Registrations"). Set forth in Section 3.13 of the Disclosure
Schedule is a list that contains all Registrations of each of CalFarm, Cal-Ag
and CalFarm Agency and reasonably necessary for its business as currently
conducted.
3.14 Intentionally Omitted.
3.15 LITIGATION. Section 3.15(a) of the Disclosure Schedule sets
forth each instance, in which each of CalFarm, Cal-Ag and CalFarm Agency (i)
is subject to any outstanding injunction, judgment, order, decree, ruling
specific to each of CalFarm, Cal-Ag and CalFarm Agency or (ii) is a party to
any action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any federal, state or
local jurisdiction or before any arbitrator except for any action, suit,
proceeding, hearing or investigation involving an amount in controversy of
$10,000 or less. Except as set forth on Section 3.15(b) of the Disclosure
Schedule, there is no action, suit, hearing, arbitration, proceeding (public
or private) of any Governmental Entity or any
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other Person, to which CalFarm, Cal-Ag or CalFarm Agency is a party, which,
if adversely determined or resolved, would be reasonably expected to have a
CalFarm Material Adverse Effect and there are no existing or
threatened-in-writing orders, judgments or decrees involving a specific
monetary judgement or penalty (other than those of general application) of
any Governmental Entity affecting CalFarm, Cal-Ag and CalFarm Agency which
would have a CalFarm Material Adverse Effect.
3.16 MATERIAL CONTRACTS. Section 3.16 of the Disclosure Schedule
contains a true and complete list of all the following Contracts (true and
complete copies of all such written Contracts having been made available to
Buyer), currently in force, to which each of CalFarm, Cal-Ag and CalFarm
Agency is a party or by which any Assets of each of CalFarm, Cal-Ag and
CalFarm Agency is or may be bound, as such Contracts may have been amended to
the date hereof:
(a) all employment, consultation, retirement, termination,
sign-on, buy-out or other Contracts with any present or former officer,
director, trustee, employee, agent, broker or independent contractor of each
of CalFarm, Cal-Ag and CalFarm Agency (including, but not limited to, loans
or advances to any such Person or any Affiliate of such Person) providing for
annual compensation of $100,000 or more or for compensation over the term of
the Contract, and any renewal thereof, of $200,000 or more (including, but
not limited to, base salary, bonus and incentive payments and other payments
or fees, whether or not any portion thereof is deferred);
(b) all Contracts (other than, with respect to Investment Assets
and Contracts containing customary restrictions on the ability to own or
operate competing real property in a specified geographic area) with any
Person including, but not limited to, any Governmental Entity, containing any
provision or covenant: (i) limiting the ability of each of CalFarm, Cal-Ag
and CalFarm Agency to engage in any line of business, to compete with any
Person, to do business with any Person or in any location or to employ any
Person, or (ii) limiting the ability of any Person to compete with or obtain
products or services from any of CalFarm, Cal-Ag or CalFarm Agency which, in
the case of any such Contract described in clauses (i) and (ii) is,
individually or together with other such
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Contracts, reasonably likely to have a monetary effect on CalFarm, Cal-Ag or
CalFarm Agency of $250,000 or more.
(c) all Contracts relating to the borrowing of money in excess of
$500,000 by CalFarm, Cal-Ag or CalFarm Agency or the direct or indirect
guarantee by any of CalFarm, Cal-Ag or CalFarm Agency of any obligation of
any Person for borrowed money or other financial obligation of any Person in
excess of $250,000 (other than indebtedness in respect of Investment Assets);
(d) all Contracts (other than Insurance Contracts) with any Person
containing any provision or covenant relating to the indemnification or
holding harmless by any of CalFarm, Cal-Ag or CalFarm Agency of any Person
which is reasonably likely to result in a Liability to any of CalFarm, Cal-Ag
or CalFarm Agency of $250,000 or more;
(e) all Contracts relating to the acquisition for a consideration
(whether by stock or asset transfer) of $100,000 or more of any Assets,
interest in any business enterprise, and all Contracts relating to the future
disposition of Assets having a book value of $100,000 or more (including, but
not limited to, restrictions on transfer or rights of first refusal) of any
of CalFarm, Cal-Ag or CalFarm Agency other than in either case, any
Investment Asset or interest in any business enterprise or Assets to be
acquired or disposed of in the ordinary course of business;
(f) all other Contracts to which each of CalFarm, Cal-Ag or
CalFarm Agency is party or to which CalFarm's, Cal-Ag's or CalFarm Agency's
property is subject that involve the payment or receipt by CalFarm of amounts
aggregating $250,000 during any 12-month period or are otherwise material to
CalFarm other than (i) Contracts relating to Investment Assets entered into
in the ordinary course of business, and (ii) employment Contracts that are
not otherwise required to be set forth in Section 3.16 of the Disclosure
Schedule; and
(g) all outstanding proxies (other than routine proxies in
connection with annual meetings), powers of attorney or similar delegations
of authority of each of CalFarm, Cal-Ag or
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CalFarm Agency to an unrelated Person, other than those entered into in the
ordinary course of business or in connection with Investment Assets.
Each of the Contracts listed in Section 3.16 of the Disclosure
Schedule is in full force and effect and, assuming each such Contract is a
legal, valid and binding obligation of the other parties thereto, constitutes
a legal, valid and binding obligation of, CalFarm, Cal-Ag or CalFarm Agency,
as the case may be. Except as set forth in Section 3.16 of the Disclosure
Schedule, none of CalFarm, Cal-Ag or CalFarm Agency is in material violation,
breach or default of any such Contract or, with or without notice or lapse of
time or both, would be in material violation, breach or default of any such
Contract. Except as set forth in Section 3.16 of the Disclosure Schedule, no
such Contract contains any provision providing that any party thereto other
than CalFarm, Cal-Ag or CalFarm Agency, as the case may be, may terminate
such Contract by reason of the execution of this Agreement or the
consummation of the transactions contemplated hereby.
3.17 ERISA. (a) Section 3.17(a) of the Disclosure Schedule
identifies each Employee Plan which is or was intended to be a "qualified
plan" described in Code Section 401(a) to which CalFarm is or ever has been a
party, or by which it is or ever has been bound, legally or otherwise, and,
with respect to Employee Plans which are not intended to be "qualified plans"
described in Code Section 401(a), to which CalFarm is a party, by which it is
bound, legally or otherwise, or in the prior three years was a party or by
which it was bound, legally or otherwise, and as to which it has any current
liability.
(b) Seller has caused CalFarm to deliver to Buyer for each Employee
Plan listed in Section 3.17(a) of the Disclosure Schedule true, complete and
correct copies of the following, as applicable:
(i) all documents, summary plan descriptions, employee
communications and summaries of material modifications with respect to the
Employee Plans, including, if applicable, related trust agreements, and all
amendments thereto, or summary descriptions of the Employee Plans not otherwise
in writing;
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(ii) the Form 5500 filed in the three most recent plan
years, including but not limited to all schedules thereto and financial
statements;
(iii) the most recent determination letter from the IRS for
such Employee Plans which are Employee Pension Benefit Plans and which are
intended to be "qualified plans" described in Code Section 401(a);
(iv) the consolidated statement of assets and liabilities as
of the most recent valuation date; and
(v) the statement of changes in fund balance and in financial
position or the statement of changes in net assets available for benefits for
the most recently ended plan year.
The financial statements so delivered fairly present the financial
condition and the results of operations of each of such plans as of such
dates.
(c) Except as specified in Section 3.17(c) of the Disclosure
Schedule, with respect to Employee Plans listed in Section 3.17(a) of the
Disclosure Schedule:
(i) Seller or CalFarm is in material compliance with the
applicable provisions of ERISA and the Code (as amended through the date of this
Agreement), the regulations and published authorities thereunder, and all other
Laws applicable with respect to all such Employee Plans;
(ii) Seller or CalFarm has substantially performed all of its
obligations under all such Employee Plans including, but not limited to, the
full payment when due of all amounts required to be made as contributions
thereto or otherwise;
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(iii) to the Knowledge of Seller, there are no actions, suits
or claims (other than routine claims for benefits) pending or threatened
against such Employee Plans or their assets, or arising out of such Employee
Plans;
(iv) to the Knowledge of Seller, no facts exist which could
give rise to any such actions, suits or claims which, individually, would result
in a payment in excess of $25,000;
(v) there are no negotiations, demands or proposals that are
pending or have been made which concern matters now covered, or that would be
covered, by such Employee Plans; and
(vi) no such Employee Plan is a Multiemployer Plan.
(d) Section 3.17(d) of the Disclosure Schedule identifies each
Benefit Arrangement which is not an Employee Plan to which CalFarm is a
party, by which it is bound, legally or otherwise, or in the prior three
years, was a party or by which it was bound, legally or otherwise and as to
which it has any current liability or obligations.
(i) Seller has caused CalFarm to deliver to Buyer for each
such Benefit Arrangement true and complete copies of all the documents and
summary plan descriptions with respect to such Benefit Arrangement listed in
Section 3.17(d) of the Disclosure Schedule, including, if applicable, related
trust agreements, and all amendments thereto, or summary descriptions of such
Benefit Arrangements not otherwise in writing.
(ii) CalFarm has substantially performed all of its
obligations under all such Benefit Arrangements including, but not limited to,
the full payment when due of all amounts required to be made as contributions
thereto or otherwise.
(iii) To Knowledge of Seller, there are no actions, suits or
claims (other than routine claims for benefits) pending or threatened against
CalFarm under such Benefit
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Arrangements, or arising out of such Benefit Arrangements, and no facts exist
which could give rise to any such actions, suits or claims which,
individually, would result in a payment in excess of $25,000.
(e) With respect to each such Benefit Plan which is an Employee
Benefit Plan or a plan (within the meaning of Section 4975(e)(1) of the Code),
there has not occurred any transaction that is a non-exempt prohibited
transaction under Section 406 of ERISA or Section 4975(c) of the Code.
(f) Where such authorization is required, each such Benefit Plan
which is an Employee Benefit Plan has been duly authorized by CalFarm's board
of directors. Each such Benefit Plan which is an Employee Pension Benefit
Plan and is intended to be qualified under Code Section 401(a) is qualified
in form and operation under Section 401(a) of the Code and each trust under
each such plan is exempt from tax under Section 501(a) of the Code. Except
as disclosed in Section 3.17(f) of the Disclosure Schedule, no event has
occurred that will or could give rise to disqualification or loss of
tax-exempt status of any such plan or trust under such Sections. No event
has occurred that will or could subject any such plans to tax under Section
511 of the Code.
(g) With respect to each Benefit Plan maintained for employees of
CalFarm or any of its ERISA Affiliates, and which is subject to Section 412
of the Code, there has occurred no failure to meet the minimum funding
standard of Section 412 of the Code (whether or not waived in accordance with
Section 412(d) of the Code) or failure to make by its due date a required
installment under Section 412(m) of the Code.
(h) Neither CalFarm nor any ERISA Affiliate participates or has
participated in a plan which is subject to Title IV of ERISA.
(i) Except as disclosed in Section 3.17(i) of the Disclosure
Schedule, neither the execution of this Agreement nor the consummation of the
transactions contemplated by this Agreement will:
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(i) accelerate the time of payment or vesting, or increase
the amount, of compensation or benefits due under any Benefit Plan;
(ii) constitute or result in a prohibited transaction with
respect to any Benefit Plan under Section 4975 of the Code or Sections 406
and/or 407 of ERISA for which an exemption is not available; or
(iii) constitute a deemed severance or deemed termination
under any Benefit Plan or with respect to any Benefit Plan under any
applicable law.
(j) Except as disclosed in Section 3.17(j) of the Disclosure
Schedule, each of the Employee Plans can be terminated, or CalFarm's
participation in such plans can be terminated, within a period of 30 days
without the payment of additional compensation of any amount, the additional
vesting of benefits, or the acceleration of any benefit.
(k) All group health plans of CalFarm and any ERISA Affiliate have
been operated in compliance with Section 162(k) (as in effect immediately
prior to the Technical and Miscellaneous Revenue Act of 1988), Section 4980B
of the Code, and Section 9801 et seq. of the Code to the extent such
requirements are or were applicable. Except to the extent required under
Section 4980B of the Code, CalFarm, Cal-Ag and CalFarm Agency do not provide
health or welfare benefits (through the purchase of insurance or otherwise)
for any retired or former employee.
(l) Except as disclosed in Section 3.17(l) of the Disclosure
Schedule, there has been no act or omission by CalFarm or any ERISA Affiliate
that has given rise to or may give rise to fines, penalties, taxes, or
related charges under Section 502(c), (i) or (l), Section 4071 of ERISA or
Chapter 43 of the Code.
3.18 BROKER'S OR FINDER'S FEES. No broker, investment banker,
financial advisor or other person, other than Credit Suisse First Boston
Corporation, the fees and expenses of which will be paid by Seller, is
entitled to any broker's, finder's, financial advisor's or other similar fee
or
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commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by Seller.
3.19 OPERATIONS INSURANCE. Section 3.19 of the Disclosure Schedule
contains a true, complete and correct list of all liability, property,
workers' compensation, directors' and officers' liability, and other similar
Insurance Contracts that insure the Business or properties of each of
CalFarm, Cal-Ag and CalFarm Agency or affect or relate to the ownership, use,
or operations of any Assets of each of CalFarm, Cal-Ag and CalFarm Agency and
that have been issued to either Seller (for the insurance of CalFarm
liabilities) or CalFarm (including, but not limited to, the expiration dates
thereof, any deductible amounts in respect thereof) and a description of all
claims thereunder or to any events which have occurred and may be covered
thereunder, in either case in excess of $100,000 per incident since January
1, 1994 through the date hereof. All such insurance is in full force and
effect and, to the knowledge of Seller, is with financially sound and
reputable insurers. All notices of reportable incidents with respect to such
insurance occurring during the last five years have been given in writing to
appropriate carriers on a basis sufficiently timely to preserve the right of
recovery of such insurance. Except as set forth in Section 3.19 of the
Disclosure Schedule, to the Knowledge of Seller, no party to any Insurance
Contract has stated an intent or threatened to terminate or materially
increase the premium in respect of any such Insurance Contract.
3.20 CANCELLATIONS. Except as set forth in Section 3.20 of the
Disclosure Schedule, since December 31, 1998, no Person or group of Persons
acting in concert writing, selling or producing insurance business, which in
the aggregate accounted for three percent (3%) or more of the gross written
premium of CalFarm for the year ended December 31, 1998, has terminated or
substantially reduced, or threatened to terminate or substantially reduce,
its relationship with CalFarm. Except as set forth in Section 3.20 of the
Disclosure Schedule, to the Knowledge of Seller, since December 31, 1998, no
policyholder or group of policyholders acting in concert has terminated or
given notice of its intent to terminate, or, to the knowledge of Seller,
threatened to terminate any Insurance Contract to which CalFarm is a party
which accounted for in excess of one and one-half percent (1.5%) or more of
the gross written premium of CalFarm for the year ended December 31, 1998.
Notwithstanding anything herein to the contrary, with respect to Section 3.20
of the Disclosure
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Schedule, Seller shall have the right to update such Section and such Section
3.20 of the Disclosure Schedule as updated shall be deemed to be made as of
the date hereof.
3.21 TANGIBLE PROPERTY; LIENS AND SECURITY INTEREST. Except as set
forth in Section 3.21 of the Disclosure Schedule, the equipment, furniture,
leasehold improvements, fixtures and any related capitalized items, in each
case material to the business of each of CalFarm, Cal-Ag and CalFarm Agency
are sufficient to operate the Business as it has been operated since December
31, 1998, and are owned by each of CalFarm, Cal-Ag and CalFarm Agency free
and clear of all Liens except for Permitted Liens.
3.22 TAX RETURNS AND TAXES. Seller represents and warrants to
Buyer as of the date hereof that except as set forth in Section 3.22 of the
Disclosure Schedule:
(a) All Tax Returns with respect to CalFarm that have become due
to be filed have been timely filed and all taxes payable for all periods
covered by such Tax Returns have been paid and there are no audits or
investigations relating to, and no claims, demands or assessments of, Taxes
pending or threatened against CalFarm.
(b) Seller has caused CalFarm to deliver to Buyer complete and
correct copies of the three most recent federal income Tax Returns prepared
by, or on behalf of, CalFarm, and Seller shall cause to be delivered to
Buyer, prior to Closing, complete and correct copies of all other Tax
Returns, filed or required to be filed in any jurisdiction by or on behalf of
CalFarm and as reasonably requested by Buyer.
(c) The amounts accrued on the books and financial statements of
CalFarm for Taxes, whether or not due and payable, imposed on or with respect
to the operations or assets of CalFarm for all periods (or portions thereof)
ending on or before the date hereof are sufficient for payment of all Taxes
payable for such periods.
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(d) CalFarm shall continue to determine and reserve for Taxes for
purposes of the accrual of such amounts on the books and financial statements
of CalFarm in a manner that is consistent with the procedure in effect at the
time the provision for Taxes for purposes of the Closing Balance Sheet was
determined, and no amount will be accrued or reserved for Taxes as a result
of the transactions contemplated hereby, except for the Tax liability related
to the transfer of assets and liabilities as a result of the depooling and
termination of the Intercompany Pooling Agreement.
(e) Neither Seller nor CalFarm has granted any waivers or other
agreements extending any statutory period of limitation for the assessment of
Taxes of CalFarm.
(f) Seller has caused CalFarm to provide Buyer with copies of all
record retention agreements currently in effect between CalFarm and any
Taxing Authority.
(g) Seller is eligible to make the election under Section
338(h)(10) of the Code in respect of the purchase (or deemed purchase) of the
Shares and the stock of each Subsidiary of CalFarm and that such purchase
(and deemed purchase) will be treated as "qualified stock purchases" within
the meaning of Section 338 of the Code.
(h) Each of the foregoing representations and warranties shall
remain accurate as of the Closing Date.
3.23 COMPLIANCE WITH LAWS. (a) Except as set forth in Section 3.23
of the Disclosure Schedule, none of CalFarm, Cal-Ag and CalFarm Agency is in
violation (or, with notice or lapse of time or both, would be in violation)
of any term or provision of any Law applicable to it or any of its Assets,
the violation of which is, individually or in the aggregate with all other
such violations, reasonably likely to have a CalFarm Material Adverse Effect.
(b) Except as set forth in Section 3.23 of the Disclosure
Schedule, none of CalFarm , Cal-Ag and CalFarm Agency is a party to any
Contract with or other undertaking to, nor is it subject to any Order by, nor
is it a recipient of any supervisory letter or other written
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communication of any kind from, any Governmental Entity which it has had
since December 31, 1998, or is reasonably likely to have, a CalFarm Material
Adverse Effect.
(c) CalFarm has implemented procedures and programs which are
reasonably designed to provide assurance that CalFarm and its respective
agents and employees are in compliance in all material respects with all
applicable Laws. Seller or CalFarm have previously provided Buyer with a
true, complete and correct copy of documents related to CalFarm's compliance
program.
3.24 INTERESTS OF OFFICERS. Except as disclosed in Section 3.24 of
the Disclosure Schedule and except for any Insurance Contracts issued by
CalFarm to officers and directors of CalFarm, Cal-Ag and CalFarm Agency and
Seller, no officer or director of CalFarm, Cal-Ag or CalFarm Agency nor any
Affiliate of any of the foregoing parties has any loan or other obligations
outstanding to or from CalFarm, Cal-Ag or CalFarm Agency or for which
CalFarm, Cal-Ag or CalFarm Agency is or may be liable under guaranty or
otherwise, or has any material interest in any firm, person or entity with
which CalFarm, Cal-Ag or CalFarm Agency has entered into any contract or
lease, or with which CalFarm, Cal-Ag or CalFarm Agency does business and
which would influence that person in doing business with CalFarm, Cal-Ag or
CalFarm Agency.
3.25 EMPLOYEES. The list of CalFarm employees provided to Buyer on
the date hereof is, and an updated list to be provided at Closing will be, a
true and complete list of all present employees of CalFarm when provided and
at Closing. The Seller has also provided Buyer with the following
information: (a) the aggregate amount paid as salary in fiscal 1998; (b) the
amount of salary currently being paid on an annualized basis; (c) the nature
(E.G., cash bonus) and amount of all aggregate direct and indirect
remuneration other than salary paid during fiscal 1998; (d) the nature and
amount of all aggregate direct and indirect remuneration other than salary
currently being paid on an annualized basis; and (e) the terms of any
employment agreements between CalFarm and such employee. Such list shall
indicate which of such employees are currently receiving long term or short
term disability benefits, or are on a paid or unpaid leave of absence.
CalFarm shall also provide a list of individuals who are receiving health
care benefits, under any plan maintained by CalFarm, Cal-Ag or CalFarm Agency
or to which such parties contribute, pursuant to the provisions of such plan
or
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plans which are intended to satisfy the requirements of Section 4980B of the
Code. This information shall be updated at Closing.
3.26 INTELLECTUAL PROPERTY. Each of CalFarm, Cal-Ag and CalFarm
Agency owns or has rights to use all Intellectual Property reasonably necessary
for use in its Business as currently conducted except for any failure to have
such right which would not, individually or in the aggregate, reasonably be
expected to have a CalFarm Material Adverse Effect. With respect to such
Intellectual Property which is reasonably necessary for use in the Business of
CalFarm, Cal-Ag and CalFarm Agency as currently conducted and which is owned
exclusively by CalFarm, Cal-Ag or CalFarm Agency ("Owned Intellectual
Property"), to the knowledge of Seller, there are no Liens other than Permitted
Liens recorded against such Owned Intellectual Property. To the knowledge of
Seller, none of CalFarm, Cal-Ag and CalFarm Agency has been notified that the
use of such Intellectual Property infringes or otherwise violates the rights of
any Person or that any Person is challenging, infringing on or otherwise
violating any ownership or use right of CalFarm, Cal-Ag and CalFarm Agency with
respect to the Intellectual Property.
3.27 BOOKS AND RECORDS. The books of account and other financial
records of each of CalFarm, Cal-Ag and CalFarm Agency are in all material
respects complete and correct and are accurately reflected, with respect to
CalFarm, in accordance with the requirements of SAP in the SAP Statements and,
with respect to Cal-Ag and CalFarm Agency, in accordance with the requirements
of GAAP in the GAAP Statements. Seller has provided Buyer with access to all of
CalFarm's, Cal-Ag's and CalFarm Agency's board of directors' and stockholder's
minutes and consents.
3.28 ENVIRONMENTAL MATTERS. Except as set forth in Section 3.28 of
the Disclosure Schedule:
(a) CalFarm, its operations and Real Property are in substantial
compliance in all material respects with all applicable Environmental Laws,
which compliance includes, but is not limited to, the possession of all
Environmental Permits required under Environmental Laws and compliance with
the terms and conditions thereof, other than such Real Property in respect of
which
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the failure to comply with applicable Environmental Laws is not reasonably
likely to result in costs of further investigation, clean-up and related
oversight, fines, penalties and third party claims exceeding $250,000 in any
individual case and $1,000,000 in the aggregate during the five-year period
commencing on the date hereof. To the Knowledge of Seller, CalFarm has not
received any written notification by a Governmental Entity, citizens' group,
employee or otherwise, that alleges that CalFarm or its Real Property is not
in such compliance. To the Knowledge of Seller, CalFarm has not received any
written notification by any Governmental Entity that any such Environmental
Permit will be modified, suspended or revoked or cannot be renewed or
transferred in the ordinary course of business consistent with past practice
or in connection with the transaction.
(b) There is no Environmental Claim pending against CalFarm, any
Real Property or any Person whose Liability for any Environmental Claims
CalFarm has retained or assumed, either contractually or by operation of Law,
and to the Knowledge of Seller, there are no material facts existing on the
date hereof which will result in any such Environmental Claim.
(c) To the Knowledge of Seller, there have been no releases,
spills, leaks or discharges of Hazardous Materials, in contravention of
Environmental Laws, at, from or to any Real Property or any other property
which required or is reasonably likely to require CalFarm to undertake
investigation, abatement, removal, remedial, corrective or other response
action pursuant to applicable Environmental Laws. To the Knowledge of
Seller, none of the Real Property (i) is listed on any list maintained by any
Governmental Entity of sites that may require investigation, abatement,
removal, remedial, corrective or response action, (ii) is the subject of any
investigation, abatement, removal, remedial, corrective or response action,
or (iii) is subject to any material restrictions on ownership, occupancy, use
or transferability under any Environmental Law.
(d) To the Knowledge of Seller, no Hazardous Materials were
manufactured, generated, stored, treated, disposed of, transported from or
otherwise managed at any Real Property, nor were Hazardous Materials from any
Real Property disposed of at any other property in contravention of
Environmental Laws.
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(e) To the Knowledge of Seller, there is no Real Property or
formerly owned Real Property that is subject to notification and/or
disclosure requirements pursuant to state property transfer statutes.
(f) To the Knowledge of Seller, there are no underground storage
tanks or surface impoundments that ever existed, or currently exist, upon, in
or under any Real Property in contravention of applicable Environmental Laws.
3.29 LABOR RELATIONS AND EMPLOYMENT. (a) Except to the extent set
forth in Section 3.29 of the Disclosure Schedule, (i) there is no labor
strike, material labor dispute, slowdown, stoppage or lockout actually
pending, or to the Knowledge of Seller threatened against or affecting any of
CalFarm, Cal-Ag or CalFarm Agency and since January 1, 1994, there has not
been any such action; (ii) to the Knowledge of Seller, there are no pending
union claims to represent the employees of CalFarm, Cal-Ag or CalFarm Agency
there are no current union organizing activities among the employees of
CalFarm, Cal-Ag or CalFarm Agency and none of CalFarm, Cal-Ag or CalFarm
Agency has received notice of any unfair labor practice complaint or charge
against it pending before the National Labor Relations Board; (iii) none of
CalFarm, Cal-Ag or CalFarm Agency is a party to or is bound by any collective
bargaining or similar agreement with any labor organization, or work rules or
practices agreed to with any labor organization or employee association,
applicable to employees of CalFarm, Cal-Ag or CalFarm Agency; (iv) to the
Knowledge of Seller, there are no written personnel policies, rules or
procedures applicable to employees of CalFarm Cal-Ag and Cal Farm Agency,
other than those set forth in Section 3.29 of the Disclosure Schedule, true
and correct copies of which have heretofore been delivered to Buyer; and (v)
each of CalFarm Cal-Ag and Cal Farm Agency is in compliance in all material
respects with all applicable Laws respecting employment and employment
practices, terms and conditions of employment, wages and hours. Except as set
forth in Section 3.29 of the Disclosure Schedule, no employee, officer,
director or independent contractor of CalFarm is entitled to any payment of
money or other thing of value or will receive any rights with respect to the
capital stock of CalFarm as a result of this Agreement. Except as set forth
in Section 3.29 of the Disclosure Schedule, none of the transactions
contemplated by this Agreement shall constitute a triggering event under any
employment, severance or termination agreement or other
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compensation arrangement or any plan currently in effect which (either alone
or upon the occurrence of any additional or subsequent event) would result in
any payment, acceleration, vesting or increase in benefits to any current or
former officer, employee, director or independent contractor of CalFarm or
any Subsidiary of CalFarm which would constitute an "excess parachute
payment" (as such term is defined in Section 280G(b)(1) of the Code).
(b) Since January 1, 1994, none of Seller, CalFarm, Cal-Ag or
CalFarm Agency has effectuated (i) a "plant closing" (as defined in the WARN
Act) affecting any site of employment or one or more facilities or operating
units within any site of employment or facility of CalFarm; or (ii) a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Seller; nor has any of CalFarm, Cal-Ag or CalFarm Agency been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state or local Law.
(c) Each of CalFarm, Cal-Ag and CalFarm Agency (i) has withheld
all amounts (except for such amounts not exceeding in aggregate $50,000)
required by Law or by agreement to be withheld from the wages, salaries and
other payments to its employees, former employees, independent contractors,
directors and former directors, (ii) is not liable for any arrears of wages
or any Taxes or any penalty for failure to comply with any of the foregoing,
and (iii) is not liable for any payment to any trust or other fund or to any
Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits except, in the cases of clauses (ii) and
(iii) to the extent that any such violation or liability is not, individually
or in the aggregate, reasonably likely to have a CalFarm Material Adverse
Effect.
3.30 TRANSACTIONS WITH AFFILIATES. Except for the Related
Transfers and as otherwise set forth in Section 3.30 of the Disclosure
Schedule, none of CalFarm, Cal-Ag and CalFarm Agency has entered into any
transaction with an Affiliate under which either CalFarm, Cal-Ag and CalFarm
Agency will have continuing obligations after the Closing, in the ordinary
course of business or otherwise, which is not on the terms at least as
favorable to CalFarm, Cal-Ag and CalFarm Agency
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as would have been applicable if such transaction had been entered into on an
arms-length basis with an unaffiliated third party.
3.31 ASSETS. Except (i) as set forth in Section 3.31 of the
Disclosure Schedule and (ii) for Intellectual Property, each of CalFarm,
Cal-Ag and CalFarm Agency: (a) has title to all of its properties, assets
and other rights that do not constitute real property, free and clear of all
Liens other than Permitted Liens; and (b) owns, has valid leasehold interests
in or valid contractual rights to use, all of the assets, tangible and
intangible, used by, or necessary for the conduct of, its business, except
where the failure to have such title or such valid leasehold interests or
such valid contractual rights would not, individually or in the aggregate,
reasonably be expected to be material.
3.32 INTERCOMPANY AGREEMENTS. Set forth in Section 3.32 of the
Disclosure Schedule is a true and complete list of all Contracts between
CalFarm and its Affiliates.
3.33 SOLVENCY. Immediately prior to and immediately after any
transfer of assets from Seller to CalFarm in connection with the Depooling
Agreement and at the Closing Date, neither Seller nor CalFarm will have
reasonable cause to believe that Seller is insolvent or is about to become
insolvent as such term is used in the California Insurance Code and the rules
and regulations promulgated thereunder.
3.34 NO MISLEADING OR UNTRUE STATEMENTS. None of the statements or
information contained in any of the representations and warranties of Seller set
forth in this Agreement or in any of the Disclosure Schedules, certificates or
lists attached hereto, or delivered or to be delivered to Buyer hereunder,
contains any untrue statement of a material fact or omits any statement of a
material fact necessary to make the statements contained herein or therein not
misleading, in the light of the circumstances under which such statements were
made.
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SECTION 4.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, effective as of the date
hereof, as follows:
4.1 CAPACITY OF BUYER. Buyer is a mutual insurance company duly
organized, validly existing and in good standing under the laws of the State
of Ohio and has all requisite corporate power and authority to enter into
this Agreement and to perform its obligations hereunder. Complete and correct
copies of the articles of incorporation and code of by-laws of Buyer, each as
amended to the date of delivery, have been delivered to Seller.
4.2 VALIDITY AND EXECUTION OF AGREEMENT. The execution and
delivery of this Agreement by Buyer and the performance of the transactions
herein contemplated have been duly and validly authorized by all necessary
corporate action on the part of Buyer. The board of directors of Buyer has
duly approved this Agreement and no further corporate action is required for
this Agreement to be enforceable against Buyer or to provide for the funding
of its obligation hereunder. This Agreement has been duly executed and
delivered by Buyer and, assuming this Agreement constitutes a valid and
binding agreement of Seller, constitutes the legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
subject to the qualification that enforcement of the rights and remedies
created hereby is subject to (a) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors; and (b) general principles of equity (regardless of
whether such enforcement is considered in a proceeding in equity or at law).
4.3 NO CONFLICT. Neither the execution and delivery of this
Agreement nor the performance of the transactions contemplated herein by
Buyer will: (a) violate or conflict with any of the provisions of the
articles of incorporation or code of by-laws of Buyer; (b) violate, conflict
with, or result in a breach of any provisions of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or
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result in the creation of any Lien upon any of the assets of, Buyer under the
terms, conditions or provisions of any contract, or require notice and/or
consent, under any contract or order to which Buyer is a party or by which
any of its property is bound except for such violations, conflicts, breaches,
defaults, terminations, accelerations and Liens that would not, individually
or in the aggregate, reasonably be expected to have a Buyer Material Adverse
Effect; (c) subject to the governmental approvals and other matters referred
to in the following sentence, violate any Environmental Permit, Law or
License to which Buyer is subject except for such violations that would not,
individually or in the aggregate, reasonably be expected to have a Buyer
Material Adverse Effect. Except for the approval of the California Insurance
Departments, and the filings required under the HSR Act and the expiration or
other termination of any waiting period, no Consent or Filing with any Person
is required with respect to the execution and delivery of this Agreement by
Buyer and the consummation of the transactions contemplated hereby, except
for such Consents or Filings the failure of which to make or obtain would
not, individually or in the aggregate, prevent or be a material impediment to
the consummation of the transactions contemplated hereby.
4.4 BROKER'S OR FINDER'S FEES. No broker, investment banker,
financial advisor or other person, other than J.P. Morgan & Co. Incorporated,
the fees and expenses of which will be paid by Buyer, is entitled to any
broker's, finder's, financial advisor's or other similar fee or commission in
connection with the transactions contemplated by this Agreement based upon
arrangements made by Buyer.
4.5 LITIGATION. There is no lawsuit or legal, administrative or
regulatory proceeding or investigation pending or, to the Knowledge of Buyer,
threatened in writing against Buyer which has had or would reasonably be
expected to have a Buyer Material Adverse Effect on the validity and
enforceability of this Agreement and the consummation of the transactions
contemplated hereby.
4.6 INVESTMENT REPRESENTATION. Buyer will acquire the Shares for its
own account, and Buyer has no present intention of resale or other distribution
thereof. Buyer will refrain from
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transferring or otherwise disposing of the Shares, or any interest therein,
in such manner as to violate any registration provision of federal or state
securities Laws.
4.7 SECTION 338(h)(10) ELECTION. Buyer represents that it is
eligible to make the election under Section 338(h)(10) of the Code in respect of
the purchase (or deemed purchase) of the Shares and the stock of each Subsidiary
of CalFarm and that such purchase (and deemed purchase) will be treated as
"qualified stock purchases" within the meaning of Section 338 of the Code.
4.8 SOLVENCY. At the Closing Date and upon physical transfer of
funds pursuant to Section 2.3 of this Agreement, Buyer will not have reasonable
cause to believe that Buyer is insolvent or is about to become insolvent as such
term is used in the Ohio Insurance Laws or the rules and regulations promulgated
thereunder.
SECTION 5.
SELLER'S PRE-CLOSING COVENANTS
Seller covenants and agrees to take the following actions between the
date hereof and the Closing Date:
5.1 GENERAL. Seller will use commercially reasonable efforts to take
all actions and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement.
5.2 NOTICES AND CONSENTS. Seller will give any reasonable notices
to third parties, and Seller will use commercially reasonable efforts to
obtain any third-party consents that are reasonably necessary in order to
consummate the transactions contemplated by this Agreement. Seller will give
any notices to, make any filings with, and use commercially reasonable
efforts to obtain any authorizations, consents, and approvals of governments
and Governmental Entities in connection with the matters referred to herein.
Seller will use commercially reasonable efforts to assist Buyer in obtaining
any necessary approvals or consents.
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5.3 CONDUCT OF BUSINESS. Except as otherwise contemplated by this
Agreement or pursuant to agreements entered into prior to the date hereof,
pending the Closing, Seller shall cause CalFarm, Cal-Ag and CalFarm Agency to
operate and carry on its business in all material respects only in the
ordinary course consistent with past practices and, without limiting the
generality of the foregoing, pending the Closing:
(a) PRESERVATION OF BUSINESS. Seller shall cause CalFarm, Cal-Ag and
CalFarm Agency to take commercially reasonable actions to preserve the
properties, assets and the goodwill of its Business.
(b) PROHIBITED CHANGES. Except for, or in connection with, the
settlement of any claim, lawsuit or administrative or regulatory proceeding
pending or hereafter brought against CalFarm, Cal-Ag or CalFarm Agency for
which Seller will provide notice to Buyer, and except as otherwise
contemplated by this Agreement, Seller shall prevent CalFarm, Cal-Ag or
CalFarm Agency from taking any of the following actions without the prior
written approval of Buyer:
(i) Sell, consume or otherwise dispose of any assets material
to CalFarm, Cal-Ag or CalFarm Agency except in the ordinary course of
business consistent with past practice; or
(ii) Enter into any contract or commitment of any kind
material to CalFarm, Cal-Ag or CalFarm Agency except in the ordinary course
of business; or
(iii) Mortgage, pledge or subject to Liens any assets material
to CalFarm, Cal-Ag or CalFarm Agency except Permitted Liens; or
(iv) Amend the articles of incorporation or bylaws of CalFarm,
Cal-Ag or CalFarm Agency; or
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(v) Issue any capital stock of CalFarm or make any change in
the issued and outstanding capital stock of such CalFarm, Cal-Ag or CalFarm
Agency issue any warrant, option or other right to purchase shares of the
capital stock of CalFarm, Cal-Ag or CalFarm Agency or any security
convertible into the capital stock of any such company; or redeem, purchase
or otherwise acquire any shares of the capital stock of CalFarm, Cal-Ag or
CalFarm Agency; or
(vi) Declare any dividend on, or make any distribution on the
Shares or on the shares of capital stock of Cal-Ag or CalFarm Agency; or
(vii) Assume, incur or guarantee any obligation or liability
for borrowed money, other than in the ordinary course of business
consistent with past practice; or
(viii) Cancel any debts owed to CalFarm, Cal-Ag or CalFarm
Agency except for compromises of trade debt in the ordinary course of
business consistent with past practice; or
(ix) Make any changes in their accounting methods, principles
or practices; or
(x) Make any increase, except as consistent with past
practice or as otherwise contemplated by this Agreement, in the wages,
salaries, compensation, pension or other benefits payable to any officer of
CalFarm, Cal-Ag or CalFarm Agency with a title of Vice President or above
who will be an officer of CalFarm, Cal-Ag or CalFarm Agency after the
Closing.
5.4 FULL ACCESS; DELIVERY OF SAP STATEMENTS. Subject to the
confidentiality provision set forth in Section 15.3 hereof, Buyer shall have
reasonable access during normal business hours to all premises, properties,
personnel, books, records, contracts, and documents of CalFarm.
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Seller will deliver to Buyer any SAP Statement of CalFarm that is filed with
the California Department of Insurance within five (5) days after such filing.
5.5 NOTICE OF DEVELOPMENTS. Seller will give written notice to
Buyer of any material development to the Knowledge of Seller causing a breach
of any of its own representations and warranties within five days after
becoming aware of any such development. Buyer shall give written notice to
Seller within five (5) days upon learning of any breach of Seller's
representations; provided, however, Seller agrees that this Section shall in
no way limit or waive the remedies available to Buyer.
5.6 EXCLUSIVITY. Seller will: (a) not solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
portion of the assets, of CalFarm, Cal-Ag and CalFarm Agency (including any
acquisition structured as a merger, consolidation, or share exchange), or (b)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any person to do or seek any of the
foregoing. Seller will notify Buyer immediately if any Person makes any
proposal, offer, inquiry, or contact with respect to any of the foregoing.
5.7 HART-SCOTT-RODINO FILING. Within twenty (20) days of the date
hereof, the Seller shall file with the Federal Trade Commission and Antitrust
Division of the Department of Justice, any notification and report required
by the HSR Act and the rules and regulations promulgated and, in the event
that any additional filings are necessary or required, shall promptly file
any supplemental information which may be requested in connection therewith.
5.8 INSURANCE. Seller will maintain, or cause CalFarm, Cal-Ag and
CalFarm Agency to maintain, in effect insurance coverage against loss of or
damage to, and against the liabilities and risks of CalFarm in the amounts
and kinds not less favorable than those currently in effect and maintain the
same through the Closing Date.
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5.9 MAINTENANCE OF RECORDS. Seller will cause CalFarm, Cal-Ag and
CalFarm Agency to maintain and continue to keep its books, accounts and
records in the usual manner and consistent with prior practice.
5.10 COMPLIANCE WITH LAWS. Seller will cause CalFarm to comply in
all material respects with all laws, rules, regulations, orders and decrees
of any governmental body authority, including but not limited to,
Environmental Laws.
5.11 TERMINATION OF INTERCOMPANY AGREEMENTS; RELATED TRANSFERS. (a)
Seller will, and will cause CalFarm to, amend the Intercompany Pooling
Agreement, and take such other action as may be necessary, to terminate and
depool CalFarm's participation in the pooling arrangement established
thereunder, which termination and depooling shall be effective as of or prior
to the Closing Date.
(b) Seller will, and will cause CalFarm to, terminate as of or
prior to the Closing Date all other agreements between CalFarm and its
Affiliates listed in Section 3.32 of the Disclosure Schedule.
(c) Seller will use commercially reasonable efforts to effectuate
the other Related Transfers on or before the Closing Date.
5.12 CONTINUED EFFECTIVENESS OF REPRESENTATIONS AND WARRANTIES.
From the date hereof through the Closing Date, Seller will cause CalFarm,
Cal-Ag and CalFarm Agency to conduct their respective Businesses in such a
manner so that the representations and warranties made by Seller herein and
the Disclosure Schedules that are qualified by materiality shall continue to
be true and correct as stated herein, and such representations and warranties
that are not so qualified shall continue to be true and correct as stated
herein in all material respects.
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5.13 EMPLOYMENT AGREEMENTS. Seller will use commercially
reasonable efforts to cause CalFarm to enter into employment agreements in
substantially the form set forth in Annex C with the individuals identified
on a list provided to Seller by Buyer prior to the date hereof.
5.14 BENEFIT PLANS. Seller will cause CalFarm, Cal-Ag and CalFarm
Agency to terminate (a) effective on the day prior to the Closing Date, their
participation in the Zenith 401(k) Plan and (b) effective on the day of the
physical transfer of the Shares, their participation in all Benefit Plans
they maintain, participate in or to which they contribute.
5.15 TRANSITION SERVICES AGREEMENT. Immediately following the date
hereof, Seller and Buyer agree to use commercially reasonable efforts,
working diligently and cooperatively, to negotiate and execute a Transition
Services Agreement for the provision of certain services by Seller to CalFarm
and by CalFarm to Seller following the Closing on a basis consistent with
past practices. In addition, Seller and Buyer agree to use commercially
reasonable efforts, working diligently and cooperatively to negotiate a lease
agreement with respect to up to 1,000 square feet of office space in the
Sacramento Property for a monthly rent of approximately $1,900.
SECTION 6.
BUYER'S PRE-CLOSING COVENANTS
Buyer covenants and agrees to take the following actions between
the date hereof and the Closing Date:
6.1 GENERAL. Buyer will use commercially reasonable efforts to
take all actions and to do all things necessary, proper, or advisable in
order to consummate and make effective the transactions contemplated by this
Agreement.
6.2 NOTICE OF DEVELOPMENTS. Buyer will give prompt written notice
to Seller of any material development causing a breach of any of its own
representations and warranties. Buyer shall give prompt notice to Seller
upon learning of any basis which causes a breach of any of Buyer's
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representations; provided, however, Buyer agrees that this Section shall in
no way limit or waive the remedies available to Seller.
6.3 HART-SCOTT-RODINO FILING. Within twenty (20) days of the date
hereof, the Buyer shall file with the Federal Trade Commission and Antitrust
Division of the Department of Justice, any notification and report required
by the HSR Act and the rules and regulations promulgated and, in the event
that any additional filings are necessary or required, shall promptly file
any supplemental information which may be requested in connection therewith.
Buyer shall pay the pre-merger filing fee under the HSR Act.
6.4 NOTICES AND CONSENTS. Buyer will give any necessary notices
to third parties, and Buyer will use commercially reasonable efforts to
obtain any third-party consents that are reasonably necessary in order to
consummate the transactions contemplated by this Agreement. Buyer will give
any notices to, make any filings with, and use commercially reasonable
efforts to obtain any authorizations, consents and approvals of Governmental
Entities in connection with the matters referred to herein. Buyer will also
use commercially reasonable efforts to assist Seller in obtaining any
necessary approvals or consents.
6.5 TRANSITION SERVICES AGREEMENT. Immediately following the date
hereof, Seller and Buyer agree to use commercially reasonable efforts,
working diligently and cooperatively, to negotiate and execute a Transition
Services Agreement for the provision of certain services by Seller to CalFarm
and by CalFarm to Seller following the Closing on a basis consistent with
past practices. In addition, Seller and Buyer agree to use commercially
reasonable efforts, working diligently and cooperatively to negotiate a lease
agreement with respect to up to 1,000 square feet of office space in the
Sacramento Property for a monthly rent of approximately $1,900.
6.6 CALFARM'S BUSINESS. Buyer shall not and shall not cause or
permit any of its Affiliates to (i) take any action, or (ii) fail to take,
any action, which materially adversely affects the Business of CalFarm.
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SECTION 7.
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller hereunder are subject to the satisfaction or
waiver of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by Buyer herein and the Disclosure
Schedules that are qualified by materiality shall be true and correct, and
such representations and warranties that are not so qualified shall be true
and correct in all material respects, on the Closing Date and shall be
confirmed in writing at the Closing by Buyer.
7.2 PERFORMANCE BY BUYER. All of the terms and conditions of this
Agreement to be complied with and performed by Buyer on or before the Closing
Date shall have been complied with and performed in all material respects.
7.3 LEGAL CHALLENGE. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect or
threatened; PROVIDED, HOWEVER, that any party invoking this condition shall
use commercially reasonable efforts to have any such order or injunction
vacated.
7.4 APPROVALS. Seller and Buyer shall have obtained all necessary
approvals including: (a) under the HSR Act and rules and regulations
promulgated thereunder and the applicable waiting period shall have expired
or early termination of the waiting period shall have been approved by the
appropriate regulatory authority; and (b) all insurance department approvals,
credit facility approvals and other approvals referred to in Sections 3.4
and 4.3.
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7.5 MATERIAL CHANGES. There shall not have been any material
adverse change in the financial condition, results of operations or business
of Buyer from that existing as of the date hereof.
7.6 DEPOOLING AGREEMENT AND RELATED TRANSFERS. The Depooling
Agreement and the Related Transfers shall have become effective.
SECTION 8.
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer hereunder are subject to the satisfaction or
waiver of the following conditions:
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made by Seller herein and in the Disclosure
Schedules that are qualified as to materiality shall be true and correct, and
such representations and warranties that are not so qualified shall be true
and correct in all material respects, on the Closing Date and shall be
confirmed in writing at the Closing by Seller.
8.2 PERFORMANCE BY SELLER. All of the terms and conditions of
this Agreement to be complied with and performed by Seller on or before the
Closing Date shall have been complied with and performed in all material
respects.
8.3 APPROVALS AND OTHER CONSENTS. Buyer and Seller shall have
obtained all necessary approvals including: (a) under the HSR Act and rules
and regulations promulgated thereunder and the applicable waiting period
shall have expired or early termination of the waiting period shall have been
approved by the appropriate regulatory authority; and (b) all insurance
department approvals, credit facility approvals and other approvals referred
to in Sections 3.4 and 4.3 of this Agreement.
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8.4 LEGAL CHALLENGE. No temporary restraining order, preliminary
or permanent injunction or other order issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing the
consummation of the transactions contemplated hereby shall be in effect or
threatened; PROVIDED, HOWEVER, that any party invoking this condition shall
use commercially reasonable efforts to have any such order or injunction
vacated.
8.5 DEPOOLING AGREEMENT AND RELATED TRANSFERS. The Depooling
Agreement and the Related Transfers shall have become effective.
8.6 FARM BUREAU SPONSORSHIP AGREEMENT AND LICENSE AGREEMENT. A
Farm Bureau Sponsorship Agreement and License Agreement between Buyer and the
California Farm Bureau shall have been executed, consistent with the terms
set forth in the drafts of the Farm Bureau Sponsorship Agreement and the
License Agreement, each dated February 19, 1999 between Buyer and the
California Farm Bureau.
SECTION 9.
ACTIONS AT CLOSING BY SELLER
9.1 At the Closing, Seller shall deliver to Buyer:
(a) Certificates evidencing all the Shares duly endorsed or
accompanied by duly executed stock powers (in blank) and with any required
transfer stamps affixed;
(b) A certificate of an officer of the Seller: (i) attesting that
the Seller has caused a reasonable examination as to the warranties and
representations of Seller set forth herein; (ii) attesting that as of the
Closing Date each of the representations and warranties of Seller contained
herein is true; and (iii) attesting that Seller has performed all of the
obligations to be performed by Seller under this Agreement from the date
hereof through the Closing Date;
(c) Certificates of incumbency for certain officers of Seller; and
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(d) Such other documents as may be necessary or appropriate, in the
reasonable opinion of Buyer or its counsel, to evidence the authorization
of, and to effect the transactions contemplated by, this Agreement.
(e) Deliver such other documents as may be necessary or appropriate,
in the reasonable opinion of Seller or its counsel, to evidence the
authorization of, and to effect the transactions contemplated by, this
Agreement.
SECTION 10.
ACTIONS AT CLOSING BY BUYER
10.1 At the Closing, Buyer shall deliver to Seller:
(a) A wire transfer of the Purchase Price in immediately available
funds to an account designated in writing by Seller prior to the Closing
Date;
(b) A certificate of an officer of Buyer: (i) attesting that he has
caused a reasonable examination as to warranties and representations of
Buyer set forth herein; (ii) attesting, to the best of his knowledge, that
on and as of the Closing Date each of the representations and warranties of
Buyer contained herein is true; and (iii) attesting that Buyer has
performed all of the obligations to be performed by it under this Agreement
from the date hereof through the Closing Date;
(c) Certificates of incumbency for certain officers of Buyer; and
(d) Such other documents as may be necessary or appropriate, in the
reasonable opinion of Seller or its counsel, to evidence the authorization
of, and to effect the transactions contemplated by, this Agreement.
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SECTION 11.
POST-CLOSING COVENANTS
The Parties agree as follows with respect to the period following the
Closing:
11.1 GENERAL. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other party
reasonably may request, at the sole cost and expense of the requesting party.
11.2 LITIGATION SUPPORT. In the event and for so long as any party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the other, each of the other parties will
cooperate with the contesting or defending party and its counsel in the contest
or defense, make available its personnel, and provide such testimony and access
to its books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor).
11.3 NON-SOLICITATION. For a three year period following the
Closing Date, Seller shall not, without the prior written consent of Buyer
directly or indirectly solicit for employment any person who is at the time
of such solicitation an employee of Buyer (PROVIDED, HOWEVER, that Seller
shall not be restricted from engaging in acts of general solicitation that
are not specifically directed at employees of CalFarm. For a one year period
following the Closing Date, Seller shall not, without the prior written
consent of Buyer, directly or indirectly (a) solicit for employment any
person who is at the time of such solicitation an employee of CalFarm
(PROVIDED, HOWEVER, that Seller shall not be restricted from engaging in acts
of general solicitation that are not specifically directed at
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employees of CalFarm) or (b) directly or indirectly hire any person then
employed by CalFarm and listed in Annex D hereto.
11.4 NON-COMPETITION. (a) For a two-year period following the
Closing Date, Seller will not, without the prior written consent of Buyer,
directly or indirectly, own, manage, operate, join, control or participate in
the ownership, management, operation or control of, any insurance business
that writes policies of insurance in the State of California in the following
lines of business: (i) automobile, (ii) farmowners, (iii) homeowners and
(iv) commercial multiple peril coverages (other than workers' compensation
insurance); and (v) health insurance coverages (except for health insurance
coverages marketed or sold in connection with workers' compensation
insurance); PROVIDED, HOWEVER, that nothing in this Agreement shall prohibit
Seller or any of its Affiliates from engaging in the lines of business in
which Seller and its Affiliates (other than CalFarm) are engaged as of the
Closing Date; and PROVIDED, FURTHER, that Seller and its Affiliates shall not
be prohibited from acquiring control of a Person regardless of the lines of
business in which such Person is engaged provided that (x) for a ten-year
period following the Closing Date, Seller shall not enter into a sponsorship
agreement with the California Farm Bureau, (y) for a two-year period
following the Closing Date, Seller or its Affiliates shall not make a
systematic solicitation of California Farm Bureau members and (z) for a
two-year period following the Closing Date Seller or its Affiliates, shall
not systematically recruit and appoint CalFarm agents for other than workers
compensation insurance business; and PROVIDED FURTHER that Seller and its
Affiliates shall not be prohibited from acquiring an ownership interest of
less than 5% in any Person whose common equity is registered under the
Securities Exchange Act of 1934, as amended; PROVIDED, FURTHER, that nothing
in this Agreement shall restrict in any manner any Person that directly or
indirectly acquires control of Seller as a result of a merger, stock
purchase, asset sale or other transaction.
(b) For a two-year period following the Closing Date, Buyer will
not permit CalFarm (or any successor to the Business of CalFarm), without the
prior written consent of Seller, to engage in or own, manage, operate, join,
control, or participate in the ownership, management, operation or control
of, any insurance business that writes workers' compensation policies of
insurance in California. In addition, Buyer will not and will not permit any
of its Affiliates to engage
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directly or indirectly, any existing agents of CalFarm to write workers'
compensation insurance policies on behalf of Buyer, CalFarm or any of their
respective Affiliates; PROVIDED, HOWEVER, that Buyer shall not be prohibited
from engaging, directly or indirectly any existing agents of CalFarm with
which Buyer or any of its Affiliates (other than CalFarm) has an existing
relationship on the date hereof; and PROVIDED, FURTHER, that Buyer and its
Affiliates shall not be restricted from underwriting gross written premiums
for workers compensation insurance lines of up to $2 million in the State of
California on an annual basis.
(c) Buyer and Seller acknowledge that the parties would be
irreparably injured by any violation of Section 11.3 or Section 11.4 and that
the remedy at law for any such violation would be inadequate. Accordingly,
Buyer and Seller agree that, without the necessity for proving damages, Buyer
in the case of Section 11.3 and Section 11.4(a) and Seller with respect to
Section 11.4(b), in addition to any other remedies available to such party
for breaches or threatened breaches of the above provisions, shall be
entitled to temporary or permanent injunctive relief or other equivalent
relief, restraining the breaching party from any actual or threatened breach
of any such provision.
11.5 BENEFIT PLANS. Buyer will or will cause CalFarm, Cal-Ag and
CalFarm Agency to cooperate and take all actions necessary or appropriate, as
requested by Seller, in connection with Seller's termination of CalFarm,
Cal-Ag and CalFarm Agency's participation in all Benefit Plans they maintain
or participate in.
11.6 EMPLOYEE AND DIRECTOR CONTRACTS, AGREEMENTS AND COMMITMENTS.
Buyer shall honor all contracts, agreements, and commitments of CalFarm prior
to the Closing Date which apply to any current or former employee or current
or former director of CalFarm and are disclosed in Section 3.16 of the
Disclosure Schedule; provided, however, that this undertaking is not intended
to prevent CalFarm or the Buyer from enforcing such contracts, agreements,
and commitments in accordance with their terms, including, without
limitation, any reserved right to amend, modify, suspend, revoke or terminate
any such contract, agreement, or commitment.
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11.7 CREDITED SERVICE UNDER EMPLOYEE PLANS. On and after the day
following the date of the physical transfer of the Shares, Buyer shall
provide, or shall cause to be provided, to each such CalFarm employee under
each such Employee Plan of CalFarm, Buyer or any Affiliate thereof (other
than the Nationwide Insurance Enterprise Retirement Plan), credit for
purposes of eligibility to participate and vesting (but not for benefit
accrual purposes) for service with CalFarm or Affiliates performed as of the
date of the physical transfer of the Shares. Vesting service under the
Nationwide Insurance Enterprise Savings Plan shall be credited only for
purposes of the vesting provisions which are based on service and not those
provisions which are based on plan participation.
11.8 EMPLOYEE WELFARE BENEFIT. Buyer shall, or shall cause CalFarm
or any Affiliate thereof to, (i) waive all limitations as to preexisting
conditions, exclusions and waiting periods with respect to participation and
coverage requirements applicable to all CalFarm employees under any Employee
Welfare Benefit Plan maintained by Buyer or CalFarm after the date of the
physical transfer of the Shares which replaces any Employee Welfare Benefit
Plan covering CalFarm employees at the Closing Date, other than limitations
or waiting periods that are already in effect with respect to any such
employee and that have not been satisfied as of the date of the physical
transfer of the Shares under the Employee Welfare Benefit Plan maintained for
such employee as of the date of the physical transfer of the Shares or
exclusions that apply generally to all participants in such plans and (ii)
beginning on the day following the physical transfer of the Shares, assume
any and all continuing coverage obligations for CalFarm employees who are
receiving continuation coverage pursuant to Code Section 4980B as of the day
of the physical transfer of the Shares.
11.9 SETTLEMENT OF INTERCOMPANY BALANCES. Seller and Buyer shall
cause all intercompany balances between Seller or its Affiliates (other than
CalFarm, Cal-Ag or CalFarm Agency) and each of CalFarm, Cal-Ag and CalFarm
Agency existing as of the date of the Closing Balance Sheet to be settled within
sixty days following the Closing Date or if the Closing Balance Sheet is
audited, after the audit is completed.
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SECTION 12.
TAX MATTERS
12.1 INDEMNITY. (a) Seller agrees to indemnify and hold harmless
Buyer, CalFarm, Cal-Ag and CalFarm Agency against the following Taxes (except
for those Taxes reserved for on the Closing Balance Sheet) and, except as
otherwise provided in Section 12.4, against any loss, damage, liability or
expense, including reasonable fees for attorneys and other outside
consultants, incurred in contesting or otherwise in connection with any such
Taxes: (i) Taxes imposed on CalFarm, Cal-Ag or CalFarm Agency with respect to
taxable periods of such Person ending on or before the Closing Date; and (ii)
with respect to taxable periods beginning before the Closing Date and ending
after the Closing Date, Taxes imposed on CalFarm, Cal-Ag or CalFarm Agency
which are allocable, pursuant to Section 12.1(c), to the portion of such
period ending on the Closing Date.
(b) Buyer agrees to indemnify and hold Seller harmless for all
Taxes reserved for on the Closing Balance Sheet to the extent of the amount
so reserved and for all Taxes and associated expenses related to periods or
portions thereof beginning on or after the Closing Date not allocated to
Seller pursuant to Section 12.1(c).
(c) In the case of Taxes that are payable with respect to a
taxable period that begins before the Closing Date and ends after the Closing
Date, the portion of any such Tax that is allocable to the portion of the
period ending on the Closing Date shall be:
(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 or other transfer or assignment of property (real or personal,
tangible or intangible) (other than conveyances pursuant to this
Agreement, as provided under Section 12.8), deemed equal to the amount
which would be payable if the taxable period ended with the Closing
Date; and
(ii) in the case of Taxes imposed on a periodic basis with
respect to the assets of CalFarm, Cal-Ag or CalFarm Agency, or
otherwise measured by the level
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of any item, deemed to be the amount of such Taxes for the entire
period (or, in the case of such Taxes determined on an arrears basis,
the amount of such Taxes for the immediately preceding period),
multiplied by a fraction the numerator of which is the number of
calendar days in the period ending on the Closing Date and the
denominator of which is the number of calendar days in the entire
period.
(d) For purposes of Section 12.1(c)(i), Seller intends to treat
any Short Taxable Period (as defined below) with respect to the inclusion of
CalFarm, Cal-Ag and CalFarm Agency in Seller's federal consolidated Tax
Return as a regular Tax year pursuant to the terms of Treasury regulations
Section 1.1502-76(b)(2), unless the parties otherwise agree to elect to use
the ratable allocation method provided in Treasury regulations Section
1.1502-76(b)(2)(ii)(2).
12.2 TAX RETURNS AND PAYMENTS. (a) Seller shall furnish to Buyer
complete and correct copies of (i) separate company PRO FORMA income Tax
Returns that are filed or caused to be filed by Seller that reflect the
separate company income of CalFarm, Cal-Ag and CalFarm Agency with respect to
consolidated, combined and unitary Tax Returns (each a "Consolidated Return")
for the taxable periods beginning January 1, 1999, and ending on the Closing
Date (the "Short Taxable Period") and (ii) all non-Consolidated Returns that
are filed by CalFarm, Cal-Ag and CalFarm Agency. Buyer shall pay or cause
CalFarm to pay the amount of any Tax liabilities relating to CalFarm, Cal-Ag
and CalFarm Agency as calculated on a stand-alone basis for such Short
Taxable Period that are not allocable to Seller pursuant to the provisions of
Section 12.1(c); PROVIDED, HOWEVER, that Buyer and CalFarm shall not be
obligated to pay any amount to Seller in excess of the aggregate amount
accrued for Taxes on the Closing Balance Sheet.
(b) Seller shall prepare and file or otherwise furnish in proper
form to the appropriate Taxing Authority (or cause to be prepared and filed
or so furnished) in a timely manner all (i) Consolidated Returns that include
Seller (or that includes any affiliate of Seller other than CalFarm, Cal-Ag
or CalFarm Agency) and (ii) Tax Returns relating to CalFarm, Cal-Ag and
CalFarm Agency with respect to taxable periods ending on or before the
Closing Date (and Buyer shall do the
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same with respect to any non-Consolidated Return for CalFarm, Cal-Ag and
CalFarm Agency with respect to taxable periods ending after the Closing Date).
(c) The parties hereto agree that the amount of the discount under
Section 846 of the Code with respect to the unpaid losses, loss adjustment
expenses, and salvage and subrogation of CalFarm and Cal-Ag and CalFarm
Agency, if any, as of the Closing Date, shall be determined for the Short
Taxable Period by utilizing the applicable interest rate for taxable years
beginning after December 31, 1997, as determined under Section 846(c) of the
Code, and the applicable loss payment pattern, as determined under Section
846(d) of the Code (or Section 846(e) of the Code if CalFarm has elected for
prior years to utilize its own loss payment experience), and by allocating
such unpaid losses, loss adjustment expenses, and salvage and subrogation to
the lines of business and accident years in accordance with actuarial methods
and assumptions which are consistent with those applied by CalFarm and Cal-Ag
and CalFarm Agency, if any, to estimate their liability for loss and loss
adjustment expenses net of reinsurance and retrocessional recoverables and
salvage and subrogation as of December 31, 1998.
12.3 REFUNDS. Any Tax refund (including any interest with respect
thereto) relating to CalFarm, Cal-Ag or CalFarm Agency for Taxes paid for any
taxable period ending on or prior to the Closing Date shall be the property of
Seller, and, if received by Buyer, CalFarm, Cal-Ag or CalFarm Agency shall be
paid over to Seller with thirty (30) days of receipt. Any Tax refund (including
interest with respect thereto) relating to CalFarm, Cal-Ag or CalFarm Agency for
Taxes paid for any taxable period ending after the Closing Date shall be the
property of Buyer, and, if received by Seller shall be paid over to Buyer within
thirty (30) days of receipt.
12.4 CONTESTS. (a) After the Closing, Buyer shall promptly notify
Seller in writing of any written notice of a proposed assessment or claim
with respect to any inquiry, assessment, contest, proceeding or litigation (a
"Contest") of Buyer or Seller or of any of CalFarm, Cal-Ag and CalFarm Agency
which, if determined adversely to the taxpayer, would be grounds for
indemnification under Section 12.1 with respect to a breach of a Tax
representation in Section 3.22.
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(b) For all Consolidated Returns for any group of which Seller or
any of its affiliates (other than CalFarm, Cal-Ag and CalFarm Agency) is a
member, Seller shall control all such Contests in connection therewith.
Prior to the Closing Date, Seller shall control all Contests relating to
CalFarm, Cal-Ag and CalFarm Agency. After the Closing Date, in the case of a
Contest that relates to a non-Consolidated Return (or any item relating
thereto or reported thereon) for a taxable period ending on or before, or
that includes the Closing Date, Seller shall have the right at its expense to
participate in and control the conduct of such Contest, and for all taxable
periods thereafter, Buyer shall control such Contests. If Seller does not
assume the defense of any such Contest for a taxable period ending on or
before the Closing Date, Buyer may defend the same in such manner as it may
deem appropriate, including, but not limited to, settling such Contest after
giving ten (10) days' prior written notice to Seller setting forth the terms
and conditions of settlement. In the event that a Contest covered by the
third sentence of this paragraph involves issues relating to a potential
adjustment for which Seller has liability and also involves separate issues
relating to a potential adjustment for which Buyer would be liable, Buyer
shall have the right, at its expense, to control the Contest but only with
respect to the latter issues.
(c) Neither Buyer nor Seller shall enter into any compromise or
agree to settle any claim pursuant to any Contest which would adversely
affect the other party for such year or a subsequent year without the written
consent of the other party, which consent may not be unreasonably withheld.
Buyer and Seller agree to cooperate, and Buyer agrees to cause CalFarm,
Cal-Ag and CalFarm Agency to cooperate, in the defense against or compromise
of any claim in any Contest.
12.5 TIME OF PAYMENT. Payment of any amounts due under this
Section 12 in respect of Taxes shall be made within three Business Days
following an agreement between Seller and Buyer that an amount is payable
hereunder.
12.6 COOPERATION AND EXCHANGE OF INFORMATION. (a) At the Closing,
Seller shall cause CalFarm to provide to Buyer a list of all material Tax
Returns of CalFarm required to be filed
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after the Closing Date for taxable periods ending on or prior to the Closing
Date (including the due dates of such Tax Returns).
(b) Together with the Closing Balance Sheet, Seller shall provide
to Buyer a breakdown of the amounts accrued for all Taxes thereon.
(c) Buyer and Seller will provide each other with such cooperation
and information as either of them reasonably may request of the other in
filing any Tax Return, amended Tax Return or claim for refund, determining a
liability for Taxes or a right to a refund of Taxes, participating in or
conducting any Contest in respect of Taxes or making representations to or
furnishing information to parties subsequently desiring to purchase any of
CalFarm, Cal-Ag or CalFarm Agency or any part of the business from Buyer.
Such cooperation and information shall include providing copies of relevant
Tax Returns or portions thereof, together with accompanying schedules,
related work papers and documents relating to rulings or other determinations
by Taxing Authorities. Seller shall make its employees available on a basis
mutually convenient to both parties to provide explanations of any documents
or information provided hereunder. Each of Seller and Buyer shall retain all
Tax Returns, schedules and work papers, records and other documents in its
possession relating to Tax matters of CalFarm, Cal-Ag and CalFarm Agency for
each taxable period first ending after the Closing Date and for all prior
taxable periods until the later of (i) the expiration of the statute of
limitations of the taxable periods to which such Tax Returns and other
documents relate, without regard to extensions except to the extent notified
in writing of such extensions for the respective Tax periods, or (ii) three
years following the due date (without extension) for such Tax Returns. Any
information obtained under this Section 12.6 shall be kept confidential
except as may be otherwise necessary in connection with the filing of Tax
Returns or claims for refund or in conducting a Contest.
12.7 CONVEYANCE TAXES. Buyer shall be liable for and shall hold
Seller harmless against any real property transfer or gains, sales, use,
transfer, value added, stock transfer, and stamp taxes, any transfer,
recording, registration, and other fees, and any similar Taxes which become
payable in connection with the transactions contemplated by this Agreement,
and shall file such applications and documents as shall permit any such Tax
to be assessed and paid on or prior to the
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Closing Date in accordance with any available pre-sale filing procedure.
Buyer or Seller, as appropriate, shall execute and deliver all instruments
and certificates necessary to enable the other to comply with any filing
requirements relating to any such taxes.
12.8 SECTION 338(h)(10) ELECTION. (a) Buyer and Seller shall join
in an election pursuant to Section 338(h)(10) of the Code with respect to the
purchase and sale of the Shares and deemed purchase and sale of the stock of
each of Cal-Ag and CalFarm Agency, and in all comparable elections under
state and local Tax law with respect to the purchase and sale of any such
shares (together with the election under Section 338(h)(10) of the Code, the
"Elections"). Consistent with the following provisions of this Section 12.8,
each of Buyer and Seller shall take all steps required to properly and timely
effect the Elections.
(b) Buyer and Seller shall cooperate fully with respect to the
making of the Elections. Such cooperation shall include, but shall not be
limited to, (i) no later than sixty (60) days prior to the due date of Form
8023, Buyer providing Seller with a statement setting forth the calculation
of the Modified Aggregate Deemed Sales Price ("MADSP") of the assets of
CalFarm, Cal-Ag and CalFarm Agency as of the close of the Closing Date
(within the meaning of, and in accordance with Treasury regulations Section
1.338(h)(10)-1(f)) and the allocation of the MADSP among the assets of
CalFarm, Cal-Ag and CalFarm Agency as of the close of the Closing Date in
accordance with Section 338(b)(5) of the Code and the Treasury regulations
promulgated thereunder, and (ii) the preparation and delivery of any other
related documentation required by the applicable Taxing Authorities.
(c) Buyer and Seller shall jointly execute and file Form 8023 with
the Internal Revenue Service in accordance with Section 338 of the Code and
the Treasury regulations thereunder no later than the 15th day of the ninth
month beginning after the month that includes the Closing Date.
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(d) For purposes of the Elections, the insurance liabilities of
CalFarm shall be taken into account in amounts reflected for federal income
tax purposes rather than in amounts reflected in the applicable SAP Financial
Statements.
12.9 MISCELLANEOUS. (a) Seller and Buyer agree to treat all
payments made by either of them to or for the benefit of the other (including
any payments to CalFarm, Cal-Ag or CalFarm Agency) under this Section 12 and
the indemnity provisions of Section 14.2 as adjustments to the Purchase Price
or as capital contributions for Tax purposes and that such treatment shall
govern for purposes hereof except to the extent that the laws of a particular
jurisdiction provide otherwise, in which case such payments shall be made in
an amount sufficient to indemnify the relevant party on an after-Tax basis.
(b) All payments payable under any Tax-sharing agreement or
arrangement between Seller and CalFarm, Cal-Ag or CalFarm Agency for any
taxable period ending on or prior to the Closing Date shall be calculated on
a basis consistent with that used to date and be payable in full on or before
the Closing Date or within a reasonable period of time thereafter in order
for the parties hereto to determine the actual amounts due pursuant to the
terms thereof. No payments shall be made pursuant to any Tax-sharing
agreement or arrangement between Seller and CalFarm, Cal-Ag or CalFarm
Agency for or with respect to any Tax liabilities for any taxable period or
portions thereof beginning after the Closing Date. Any and all Tax-sharing
agreements or arrangements by and between Seller, CalFarm, Cal-Ag or CalFarm
Agency shall be terminated at the time that CalFarm, Cal-Ag and CalFarm
Agency are no longer permitted under applicable law to be included in a
Consolidated Return with Seller or any Seller affiliate (other than CalFarm,
Cal-Ag or CalFarm Agency).
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SECTION 13.
TERMINATION AND REMEDIES
13.1 TERMINATION OF AGREEMENT. The parties may terminate this
Agreement as provided below:
(a) The parties may terminate this Agreement by mutual written
consent at any time prior to the Closing;
(b) Buyer may terminate this Agreement by giving written notice to
Seller at any time prior to the Closing: (i) in the event Seller has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Buyer has notified Seller of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach, or (ii) if the Closing shall not have occurred
on or before September 30, 1999 (the "Upset Date"), by reason of the
failure of any condition precedent under Section 8.1 or 8.2 hereof (unless
the failure resulted primarily from Buyer itself breaching any
representation, warranty, or covenant contained in this Agreement); and
(c) Seller may terminate this Agreement by giving written notice to
Buyer at any time prior to the Closing: (i) in the event Buyer has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, Seller has notified Buyer of the
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach, or (ii) if the Closing shall not have occurred
on or before the Upset Date, by reason of the failure of any condition
precedent hereunder (unless the failure resulted primarily from Seller
itself breaching any representation, warranty, or covenant contained in
this Agreement).
(d) Either Buyer or Seller may terminate this Agreement by giving
written notice to the other party if the parties are unable to agree to a
reasonably acceptable 1998 Pro Forma
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Balance Sheet in accordance with Section 2.5 of this Agreement within 20
days after Buyer notifies Seller of any disputed items.
SECTION 14.
GENERAL SURVIVAL; INDEMNIFICATION
MEDIATION AND LITIGATION
14.1 SURVIVAL OF REPRESENTATIONS. (a) The representations and
warranties made by Seller in Section 3 hereof (including the Disclosure
Schedules and the certificate delivered in accordance with Section 9.1(b)
hereof, insofar as the Disclosure Schedule and such certificate relate to
such representations and warranties) or elsewhere in this Agreement (other
than in Section 3.22) shall survive one year after the Closing; PROVIDED,
THAT, the representations and warranties made in Sections 3.5, 3.6 and 3.17
shall survive until the expiration of the statute of limitations applicable
to each claim or event as to which a breach of such representation or
warranty is based or asserted (respectively, the "Cut-Off Date").
(b) The representations and warranties made by Buyer in Section 4
hereof (including the certificates delivered in accordance with Section 10(b)
hereof insofar as such certificates relate to such representations and
warranties) shall survive until the Cut-Off Date.
14.2 INDEMNIFICATION. (a) Seller shall indemnify, and hold, Buyer
harmless from and against any and all liability, loss, cost and expense
whatsoever (including reasonable fees of legal counsel and related
disbursements) (together, "Damages") incurred by Buyer as a result of or
related to: (i) any breach of any representation, warranty, covenant and
agreement made by Seller in this Agreement (other than in Section 3.22), in
any certificate or schedule delivered pursuant hereto; (ii) any demands,
claims, actions or causes of action of whatever kind or character arising out
of or in connection with any actions taken by Seller at any time, by its
ERISA Affiliates at any time such ERISA Affiliate is or was a Seller ERISA
Affiliate, or by CalFarm or any of its ERISA Affiliates prior to the Closing
Date, with respect to any Benefit Plan which has at any time been sponsored
by Seller, CalFarm or any ERISA Affiliate of Seller or CalFarm or with
respect to which Seller or any such person contributes or has been obligated
or required to contribute; (iii) any claim arising from
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circumstances existing at the time CalFarm was a Subsidiary of Seller by any
current or former director, officer or employee of Seller; and (iv) demands,
claims, actions or causes of action of any kind whatsoever, made in
connection with policies of insurance not directly written by CalFarm that
were ceded to CalFarm by Seller pursuant to the Intercompany Pooling
Agreement;
(b) Buyer shall indemnify and hold Seller harmless from and
against any and all Damages incurred by Seller or its Affiliates, as a result
of or related to: (i) any breach of any representation, warranty, covenant
and agreement made by Buyer in this Agreement or in any certificate or
schedule delivered pursuant hereto or any agreement executed and delivered in
connection with the transactions contemplated under this Agreement; (ii) any
claim arising from circumstances existing after the Closing by any current or
former director, officer or employee of Seller; and (iii) demands, claims,
actions or causes of action of any kind whatsoever made in connection with
policies of insurance that were directly written by CalFarm and ceded to
Seller pursuant to the Intercompany Pooling Agreement.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted
against any party in respect of which indemnity may be sought pursuant to
this Section 14.2, such Party (the "Indemnified Party") shall promptly give
written notice thereof to the person against whom such indemnity may be
sought (the "Indemnifying Party"). The notice shall state the information
then available regarding the amount of the claim or Damages and shall specify
the provision or provisions of this Agreement under which the right to
indemnification is being asserted. If within 30 days after receiving such
notice, the Indemnifying Party gives written notice to the Indemnified Party
stating that it intends to defend against such claim or Damages at its own
cost and expense, the defense (including the right to settle or compromise
such action) of such matter, including selection of counsel (subject to the
consent of the Indemnified Party which consent shall not be unreasonably
withheld) and the sole power to direct and control such defense, shall be by
the Indemnifying Party and the Indemnified Party shall make no payment in
respect of such claim or Damages to any third party as long as the
Indemnifying Party is conducting a good faith and diligent defense. In any
such defense, the Indemnifying Party will consult with the Indemnified Party
in connection with the Indemnifying Party's defense. In any such
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proceeding, any Indemnified Party shall have the right to retain its own
counsel, at its own cost and expense unless: (i) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the contrary; (ii) the
Indemnifying Party has failed within a reasonable time to retain counsel, in
which event the Indemnified Party shall have the right to retain counsel at
the expense of the Indemnifying Party; or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnified
Party and the Indemnifying Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall
not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Indemnified Party, and that
all such fees and expenses shall be reimbursed as they are incurred. Any
such separate firm sought to be retained by the Indemnified Party with
respect to which the Indemnified Party seeks to be indemnified by the
Indemnifying Party shall be designated in writing by the Indemnified Party
and any such separate firm for the Indemnifying Party to be indemnified by
the Indemnified Party shall be designated in writing by the Indemnifying
Party. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent (which shall not be
unreasonably withheld), but if settled with such consent or if there be a
final judgment for the plaintiff, the Indemnifying Party agrees to indemnify
any Indemnified Party from and against any loss or liability by reason of
such settlement or judgment. Notwithstanding the foregoing, if at any time
an Indemnified Party shall have requested an Indemnifying Party to reimburse
an Indemnified Party for fees and expenses of counsel as contemplated herein,
the Indemnifying Party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent herein if (i) such
settlement is entered into more than 30 days after receipt by such
Indemnifying Party of the aforesaid request; and (ii) such Indemnifying Party
shall not have reimbursed the Indemnified Party in accordance with such
request (other than due to a reasonable dispute as to the validity of such
request) prior to the date of settlement. If no such notice of intent to
dispute and defend is given by the Indemnifying Party, or if such diligent
good faith defense is not being or ceases to be conducted, the Indemnified
Party shall, at the expense of the Indemnifying Party, undertake the defense
of such claim or Damages with counsel selected by the Indemnified Party, and
shall have the right to compromise or settle the same exercising reasonable
business judgment. The Indemnified Party shall make available all
information and assistance that the
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Indemnifying Party may reasonably request and shall cooperate with the
Indemnifying Party in such defense. Notwithstanding anything herein to the
contrary, the Indemnifying Party shall have the right to settle all claims of
third parties for which indemnification is payable hereunder without the
consent of the Indemnified Party so long as such settlement releases the
Indemnified from all liability for or in connection with such action.
(d) Notwithstanding anything herein to the contrary, (i) no claim
by any Indemnified Party against an Indemnifying Party, which claim relates
to a breach of a representation or warranty made in this Agreement may be
made unless notice of such breach is given in accordance with this Section 14
prior to the expiration of the thirty day period immediately following the
Cut-Off Date; (ii) the Indemnifying Party shall not have any liability
hereunder unless the aggregate amount of all Damages incurred by the
Indemnified Party for which the Indemnifying Party would, but for this
provision, be liable exceeds on a cumulative basis an amount equal to
$2,000,000 and then only to the extent of such excess; and (iii) the maximum
aggregate liability of the Indemnifying Party under this Section shall not
exceed $200,000,000.
(e) None of the limitations set forth in Section 14.2 (d)(ii), and
(iii) above shall apply to claims for indemnification made by Buyer pursuant
to Section 14.2(a)(iv) above or by Seller pursuant to Section 14.2(b) (iii)
above.
(f) Notwithstanding anything in this Section 14 to the contrary,
the rights and obligations of the parties with respect to Tax matters shall
be governed exclusively by Section 12.
14.3 MEDIATION. Seller and Buyer shall endeavor to resolve any
dispute out of or relating to this Agreement by non-binding mediation under
the then current CPR Model Mediation Procedure for Business Disputes.
14.4 LITIGATION. If the dispute has not been resolved by
non-binding mediation as provided for in Section 14.3 above within ninety
(90) days of the initiation of such procedure, either party may initiate
litigation; PROVIDED, HOWEVER, that if one party has requested the other to
participate
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in a non-binding procedure and the other has failed to participate, the
requesting party may initiate litigation before the expiration of the above
period, PROVIDED FURTHER, that the losing party in any such litigation shall
be obligated to pay the attorneys fees and reasonable expenses of the
prevailing party.
SECTION 15.
GENERAL PROVISIONS
15.1 EXPENSES. Except as otherwise provided herein, all fees,
commissions and other expenses incurred by Buyer or Seller in connection with
the negotiation of this Agreement and in preparing to consummate the
transactions contemplated hereby, including the fees and expenses of their
respective counsel and other advisors, shall be borne by the party incurring
such fee, commission or expense.
15.2 EXECUTION IN COUNTERPARTS; BINDING EFFECT. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original copy and all of which together shall be considered one and the same
agreement, and shall become a binding agreement when one or more counterparts
have been signed by each party and delivered to the other parties.
15.3 CONFIDENTIALITY. The provisions of the Confidentiality
Agreement are incorporated herein by reference and shall be binding on Buyer
and Seller unless and until the Closing occurs. The provisions of this
Section 15.3 and of the Confidentiality Agreement (incorporated herein) shall
remain in force and effect notwithstanding any termination of this Agreement
under Section 13 hereof.
15.4 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
California, without giving effect to the choice of law provisions thereof.
15.5 NOTICES. (a) Service of process, and any other notices or
other communications required or permitted under this Agreement, shall be
given in writing and delivered
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personally, sent by confirmed facsimile transmission, mailed first class or
sent by overnight courier guaranteeing next-day delivery, addressed as
follows:
(i) If to Buyer: Nationwide Mutual Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
Attention: David A. Diamond
Vice President-Controller
Facsimile: (614) 249-3003
with a copy to: Dietrich, Reynolds & Koogler
One Nationwide Plaza
Columbus, Ohio 43215
Attention: Roger A. Craig, Esq.
Facsimile: (614) 249-7254
(ii) If to Seller: Zenith Insurance Company
21255 Califa Street
Woodland Hills, California 91367-5021
Attention: Stanley R. Zax
Facsimile: (818) 713-0177
with a copy to: LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019-5389
Attention: Lars Bang-Jensen
Facsimile: (212) 424-8500
(b) Notices or communications required or permitted under this
Agreement shall be deemed to have been received by the addressee: (i) on the
date given, if delivered personally or sent by confirmed facsimile
transmission, (ii) five days after the date of deposit, if mailed by first
class mail, and (iii) one day after delivery to a courier, if sent by
overnight courier guaranteeing next-day delivery. Either party may change
the person, address or facsimile transmission number for service of process
upon it or delivery of notices or other communications to it under this
Agreement by delivering notice of such change to the other party in
accordance with this Section 15.5.
15.6 TITLES AND HEADINGS. Titles and headings to Sections herein,
and the Table of Contents to this Agreement, are inserted for convenience of
reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
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15.7 SUCCESSORS AND ASSIGNS; BENEFICIARIES. This Agreement shall
inure to the benefit of, and be binding upon, the parties hereto and their
respective successors, heirs, executors, legal representatives and permitted
assigns; provided, however, that no party shall assign any rights or delegate
any of the obligations created under this Agreement without prior written
consent of the other party. Nothing in this Agreement shall confer upon any
person or entity not a party to this Agreement, or the legal representatives
of such person or entity, any rights or remedies of any nature or kind
whatsoever under or by reason of this Agreement. The representations,
warranties, covenants and agreements of Seller contained in this Agreement
are for the sole benefit of Buyer and are not intended to benefit, and may
not be relied upon or enforced by, any other person.
15.8 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement is
intended or shall be construed to give any person (including, but not
limited to, the employees of CalFarm), other than the parties hereto, their
successors and permitted assigns, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision contained herein.
15.9 ENTIRE AGREEMENT. This Agreement represents the entire
agreement and understanding of the parties with reference to the transactions
set forth herein, and no representations or warranties have been made in
connection with this Agreement or the transactions contemplated hereby other
than those expressly set forth in this Agreement, the Disclosure Schedule,
the Confidentiality Agreement or in the certificates and other documents
delivered in accordance herewith. This Agreement supersedes all prior
negotiations, discussions, correspondence, communications, and understandings
between the parties relating to the subject matter of this Agreement and all
prior drafts of this Agreement, all of which are merged into this Agreement.
No prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any proceeding involving this
Agreement.
15.10 WAIVERS AND AMENDMENTS. Each of Seller and Buyer may, but
shall not be obligated to, by written notice to the others: (a) extend the
time for the performance of any of the obligations or other actions of the
other; (b) waive any inaccuracies in the representations or warranties of the
other contained in this Agreement; (c) waive compliance with any of the
covenants
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of the other created under this Agreement; or (d) waive fulfillment of any of
the conditions to its own obligations under this Agreement. The waiver by
any party hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach, whether or not
similar. This Agreement may be amended, modified or supplemented only by a
written instrument executed by Seller and Buyer.
15.11 SEVERABILITY. This Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Agreement or of any other term
or provision hereof.
15.12 SUCCESSION AND ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the parties named herein and their
respective successors and permitted assigns. No party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without
the prior written approval of the other party; provided, however, such
approval will not be unreasonably withheld.
15.13 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
15.14 SPECIFIC PERFORMANCE. Each of the parties acknowledges and
agrees that the other party would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
agrees that the other party shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy
to which it may be entitled, at law or in equity.
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15.15 PUBLIC ANNOUNCEMENTS. Seller and Buyer will consult and make
a good faith effort to agree with each other before issuing, and provide each
other the opportunity to review, comment upon and approve, any press release
or other public statements with respect to this Agreement or the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement without the prior approval thereof by Seller
and Buyer (such approval not to be unreasonably withheld), except as may be
required by applicable law, judicial or administrative process or by
obligations pursuant to any listing agreement with any national securities
exchange or the Nasdaq Stock Market.
REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties have executed this Agreement, all as of the
day and year first above written.
ZENITH INSURANCE COMPANY
By: /s/ Stanley R. Zax
-----------------------------------
Stanley R. Zax
Chairman & President
NATIONWIDE MUTUAL INSURANCE COMPANY
By: /s/ Mark B. Koogler
-----------------------------------
Mark B. Koogler
Vice President - Associate General Counsel
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Annexes not included.
<PAGE>
THE ZENITH
Zenith National Insurance Corp.
21255 Califa Street
Woodland Hills, CA 91367-5021
Reply to: P.O. Box 9055
Van Nuys, CA 91409-9055
PRESS RELEASE Telephone 818/713-1000
- -------------------------------------------------------------------------------
BUSINESS & FINANCIAL EDITORS FREDRICKA TAUBITZ
Executive Vice President
FOR IMMEDIATE RELEASE & Chief Financial Officer
WOODLAND HILLS, CA, February 22, 1999 . . . Zenith National Insurance Corp.
(NYSE: ZNT) and Nationwide Mutual Insurance Company announced today that
Zenith's wholly-owned subsidiary, Zenith Insurance Company, has entered into
a definitive agreement to sell CalFarm Insurance Company to Nationwide Mutual
Insurance Company for $272 million in cash, subject to adjustment in certain
circumstances and subject to regulatory approvals and customary conditions.
The closing is expected to occur during the second quarter of this year.
Stanley R. Zax, Chairman and President of Zenith said, "We were approached by
Nationwide to purchase CalFarm, a California specialty company with a long
history of serving primarily the agricultural region. The sale of CalFarm
allows Zenith to strategically focus on its core workers' compensation
business and results in Zenith having a stronger financial condition. We
estimate an after tax gain on the sale of about $100 million, or about $5.84
per share, and an increase by these amounts in our book value and book value
per share."
Zenith has been advised in the transaction by Credit Suisse First Boston
Corporation.
The above release contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The words "believe", "estimate", "expect", "intend", "anticipate",
and similar expressions and variations thereof identify certain of such
forward-looking statements, which speak only as of the dates on which they
were made. Zenith National Insurance Corp. undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events, or otherwise. Readers are cautioned that
any such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, and that actual results may differ
materially from those indicated in the forward-looking statements as a result
of various factors. Readers are cautioned not to place undue reliance on
these forward-looking statements.
