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EXHIBIT 2.1
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PURCHASE AGREEMENT
PURCHASE AGREEMENT, dated as of October 7, 1999 (the "Agreement"),
by and between United Insurance Company of America, an Illinois insurance
company ("Seller"), and Ceres Group, Inc., a Delaware corporation ("Purchaser").
WHEREAS, except for directors' qualifying shares, Seller is the
owner of all of the outstanding shares of capital stock of The Pyramid Life
Insurance Company, a Kansas stock insurance company ("Pyramid") all of such
outstanding shares (including directors' qualifying shares) being referred to
herein as the Shares; and
WHEREAS, Purchaser desires to purchase, and Seller desires to sell
or cause to be sold to Purchaser, all of the Shares of Pyramid, subject to the
terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as hereinafter defined):
(a) Seller shall sell, assign, transfer and deliver to Purchaser,
and Purchaser shall purchase from Seller, all Shares held by Seller, and
(b) Seller shall cause all directors of Pyramid holding directors'
qualifying Shares to deliver to Purchaser certificates evidencing all such
Shares, duly endorsed in blank or with accompanying stock powers duly executed
in blank, in each case free and clear of all options, pledges, security
interests, liens or other encumbrances or restrictions on voting or transfer
("Encumbrances"), other than restrictions imposed by Federal or state securities
laws, the insurance laws of the State of Kansas and by Pyramid's articles of
incorporation and by-laws in the case of the directors' qualifying Shares. Upon
completion of the Closing, Purchaser shall own all of the Shares.
SECTION 1.2 PURCHASE PRICE. On the Closing Date (as hereinafter
defined) and subject to the terms and conditions set forth in this Agreement, in
reliance on the representations, warranties, covenants and agreements of the
parties contained herein and in consideration of the sale, assignment, transfer
and delivery of the Shares, Purchaser shall pay to Seller an amount equal to
$67,500,000 less the Pre-Closing Dividend amount paid to Seller by Pyramid
immediately prior to Closing as contemplated by Section 6.2(h) below (the
"Purchase Price") by wire transfer of immediately available funds to an account
or accounts designated by Seller.
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SECTION 1.3 CLOSING.
(a) The sale and purchase of the Shares contemplated by this
Agreement shall take place at a closing (the "Closing") to be held at the
offices of Seller in Chicago, Illinois on a date not later than the second
business day following the satisfaction or waiver of all conditions to the
obligations of the parties set forth in Article VI hereof or at such other place
or at such other time or on such other date as Seller and Purchaser may mutually
agree upon in writing (the day on which the Closing takes place being the
"Closing Date").
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser: (i) stock certificates evidencing all Shares (including directors'
qualifying Shares) duly endorsed in blank or accompanied by stock powers duly
executed in blank, and (ii) all other previously undelivered certificates and
other documents required to be delivered by Seller to Purchaser at or prior to
the Closing Date in connection with the transactions contemplated hereby.
(c) At the Closing, Purchaser shall deliver to Seller: (i) the
Purchase Price by wire transfer in immediately available funds to an account or
accounts designated by Seller, and (ii) all other previously undelivered
certificates and other documents required to be delivered by Purchaser to Seller
at or prior to the Closing Date in connection with the transactions contemplated
hereby.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Seller represents and warrants to Purchaser, at and as of the date
hereof and again at and as of the Closing Date, as follows:
SECTION 2.1 ORGANIZATION.
(a) Pyramid is a stock insurance corporation duly organized, validly
existing and in good standing under the laws of the State of Kansas and has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where failure to be
so organized, existing and in good standing or to have such power and authority
would not have a Pyramid Material Adverse Effect (as hereinafter defined).
Pyramid is duly qualified or licensed to do business and is in good standing in
each jurisdiction listed in Section 2.1 of the written schedule delivered by
Seller to Purchaser at or prior to the execution of this Agreement and attached
hereto (the "Disclosure Schedule"). Pyramid transacts no business directly or
indirectly in any jurisdiction other than those enumerated in Section 2.1 of the
Disclosure Schedule, except where the failure to be so licensed or qualified
would not have a Pyramid Material Adverse Effect. As used in this Agreement,
"Pyramid Material Adverse Effect" means any material adverse change in, or
material adverse effect on, the business, assets, financial condition or
operations of Pyramid, taken as a whole; PROVIDED, HOWEVER, that, the effects of
changes that arise from or are generally applicable to the life and health
insurance markets in which Pyramid operates or the United States economy, shall
in each case be excluded
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from the determination of a Pyramid Material Adverse Effect; and PROVIDED,
FURTHER, that any adverse effect on Pyramid resulting from the execution of this
Agreement and the announcement of this Agreement and the transactions
contemplated hereby shall also be excluded from the determination of a Pyramid
Material Adverse Effect.
(b) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of Illinois. Seller has all corporate
power and authority to own the Shares, to carry on its business as it is now
being conducted, and to enter into and carry out its obligations under this
Agreement.
SECTION 2.2 CAPITALIZATION/SUBSIDIARIES.
(a) Section 2.2 of the Disclosure Schedule sets forth the
authorized, issued and outstanding capital stock of Pyramid. Each of the
outstanding shares of capital stock of Pyramid is duly authorized, validly
issued, fully paid, non-assessable and free of preemptive rights. The Shares
constitute all of the issued and outstanding capital stock of Pyramid. There are
no existing (i) options, warrants, calls, subscriptions or other rights,
convertible securities, agreements or commitments of any character obligating
Seller or Pyramid or any Pyramid director owning qualifying Shares to issue,
transfer or sell any shares of capital stock or other equity interest in Pyramid
or securities convertible into or exchangeable for such shares or equity
interests, (ii) contractual obligations of Pyramid to repurchase, redeem or
otherwise acquire any capital stock of Pyramid, or (iii) voting trusts or
similar agreements to which Seller or Pyramid or any Pyramid director owning
qualifying Shares is a party with respect to the voting of the capital stock of
Pyramid.
(b) Pyramid has no subsidiaries. Pyramid is not a partner,
shareholder or joint venturer in any entity, except to the extent related to the
investment activities of Pyramid in the ordinary course of business as disclosed
in Pyramid's statutory financial statements described in Section 2.6 of this
Agreement.
SECTION 2.3 OWNERSHIP OF STOCK. Seller has all corporate power,
right and authority to own the Shares. Seller has good title to the Shares
(except the qualifying directors' Shares). The Shares are owned by Seller (or,
in the case of directors' qualifying Shares, by Pyramid's directors) free and
clear of all Encumbrances, other than restrictions imposed by Federal and state
securities laws, the insurance laws of the State of Kansas and by Pyramid's
articles of incorporation and by-laws in the case of directors' qualifying
Shares. Upon the consummation of the transactions contemplated hereby, Purchaser
will acquire title to the Shares, free and clear of all Encumbrances, other than
restrictions noted in the preceding sentence. The certificates representing the
Shares do not contain any restrictive legend or reference to any agreement.
SECTION 2.4 AUTHORIZATION; VALIDITY OF AGREEMENT. Seller has full
power and authority to execute and deliver this Agreement and, except for
delivery of directors' qualifying Shares, to consummate the transactions
contemplated hereby. The execution, delivery and performance by Seller of this
Agreement, and the consummation by it of the transactions contemplated hereby,
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has been duly authorized by all necessary corporate action, and no other
corporate action on the part of Seller is necessary to authorize the execution
and delivery by Seller of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Seller and (assuming due and valid authorization, execution and
delivery hereof by Purchaser) is a valid and binding obligation of Seller
enforceable against Seller in accordance with its terms, except that (i) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
SECTION 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for: (a)
filings pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and (b) matters specifically described in Section 2.5
of the Disclosure Schedule, neither the execution, delivery or performance of
this Agreement by Seller nor the consummation by Seller of the transactions
contemplated hereby will require on the part of Seller or Pyramid any filing or
registration with, notification to, or authorization, consent or approval of,
any court, legislative, executive or regulatory authority or government agency
(a "Governmental Entity"); except for such filings, registrations,
notifications, authorizations, consents or approvals the failure of which to
obtain would not have a Pyramid Material Adverse Effect and would not materially
adversely affect the ability of Seller to consummate the transactions
contemplated by this Agreement. Except as disclosed in Section 2.5 of the
Disclosure Schedule, neither the execution, delivery or performance of this
Agreement by Seller nor the consummation by Seller of the transactions
contemplated hereby will: (i) violate any provision of the articles of
incorporation or by-laws of Seller or Pyramid, (ii) result in a violation or
breach of, or constitute (with or without due notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which Seller or Pyramid is a party or by which their properties or assets may
be bound, or (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to Seller or Pyramid or any of their
properties or assets, except in each case for such violations, breaches or
defaults as would not have a Pyramid Material Adverse Effect and would not
materially adversely affect the ability of Seller to consummate the transactions
contemplated by this Agreement.
SECTION 2.6 FINANCIAL STATEMENTS.
(a) Seller has delivered to Purchaser copies of audited statutory
financial statements of Pyramid as of and for the years ended December 31, 1997
and 1998, and unaudited financial statements as of and for the quarters ended
March 31, 1999 and June 30, 1999 as filed with the Kansas Insurance Department
(collectively, the "SAP Financial Statements"). The SAP Financial Statements
were prepared in conformity with accounting practices prescribed or permitted by
the State of Kansas ("SAP"). Each of the balance sheets included in the SAP
Financial Statements fairly presents in all material respects the financial
position of Pyramid as of its date, and each of the statements of operations
included in the SAP Financial Statements
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fairly presents in all material respects the results of operations of Pyramid
for the period therein set forth, in each case in accordance with SAP. Each of
the SAP Financial Statements (i) was timely filed with the insurance regulatory
authorities in each of the jurisdictions listed in Section 2.1 of the Disclosure
Schedule, and (ii) were true, complete and correct in all material respects when
and as filed. All Assessments (as hereinafter defined) against Pyramid that
relate to events occurring or business done prior to the Closing Date have been
paid or properly reserved on the books and records of Pyramid. The amounts
reserved by Pyramid for any estimated Assessments that have not been finalized
and satisfied have been computed in all material respects in accordance with SAP
and sound reserving practices, consistently applied; PROVIDED that the foregoing
representation does not and is not intended to constitute in any way a
representation or guaranty as to the adequacy or sufficiency of such reserves.
For purposes of this Agreement, the term "Assessments" means all guaranty fund
and other residual market assessments required by any Governmental Entity to be
paid by Pyramid.
(b) Notwithstanding any other provision of this Agreement (including
Sections 2.6, 2.7 and 2.17), Seller makes no representation or warranty that the
insurance reserves of Pyramid for future insurance policy benefits, losses,
claims and expenses are adequate or sufficient and nothing in this Agreement is
intended to, or shall be construed to, provide a guaranty of the adequacy or
sufficiency of such reserves as shown in the SAP Financial Statements.
SECTION 2.7 NO UNDISCLOSED LIABILITIES. As of June 30, 1999, Pyramid
had no material liabilities or obligations except: (a) as disclosed in Section
2.7 of the Disclosure Schedule, (b) liabilities and obligations reflected in the
interim unaudited balance sheet of Pyramid as of June 30, 1999 included in the
SAP Financial Statement for the quarter then ended, and (c) liabilities and
obligations incurred in the ordinary course of business that are not required to
be reflected in a balance sheet prepared in accordance with SAP (assuming the
same application of SAP as was used in preparing the SAP Financial Statements)
and that would not, individually or collectively, have a Pyramid Material
Adverse Effect.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Except as: (a) disclosed in
the SAP Financial Statements, (b) disclosed in Section 2.8 of the Disclosure
Schedule, or (c) contemplated by this Agreement, since June 30, 1999, Pyramid
has not: (i) suffered any change constituting a Pyramid Material Adverse Effect;
(ii) amended its articles of incorporation or by- laws; (iii) split, combined or
reclassified the Shares or issued additional Shares; (iv) declared or set aside
or paid any dividend or other distribution with respect to the Shares, (v) made
any material changes in the compensation or benefits of Pyramid's employees
other than changes made in the ordinary course of business, or (vi) materially
changed its accounting principles, practices or methods, except as required by
SAP or applicable law.
SECTION 2.9 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Section 2.9(a) of the Disclosure Schedule sets forth a list of
all material employee benefit plans, programs and agreements, (including but not
limited to plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained,
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participated in, contributed to, or obligated to be contributed to by Pyramid,
or by any trade or business, whether or not incorporated , which together with
Pyramid, would be deemed a single employer within the meaning of Section
4001(b)(1) of ERISA (an "ERISA Affiliate") for the benefit of employees of
Pyramid ("Benefit Plans").
(b) With respect to each Benefit Plan, Seller has made available to
Purchaser complete copies of all existing plan documents (including all
amendments thereto) and, where applicable, the most recent summary plan
description, all other material employee communications and the most recent
Internal Revenue Service determination letter, if any, relating to such Benefit
Plan.
(c) Each Benefit Plan has been operated and administered in all
material respects in accordance with its terms and applicable law, including,
without limitation, ERISA and the Internal Revenue Code of 1986, as amended (the
"Code"), except where the failure to so administer such plan would not
reasonably be expected to have a Pyramid Material Adverse Effect.
(d) Except as disclosed in Section 2.9(d) of the Disclosure
Schedule, neither Pyramid nor any ERISA Affiliate sponsors or contributes to,
and has not within the six (6) years preceding the Closing, sponsored or
contributed to or has had an obligation to contribute to a "multiemployer plan,"
as defined in Section 3(37) of ERISA, and no Benefit Plan provides medical or
death benefits with respect to current or former employees of Pyramid beyond
their termination of employment other than (i) to the extent required by
applicable law, (ii) death benefits under any "pension plan" (as defined in
Section 3(2) of ERISA) or (iii) benefits the full cost of which is borne by the
current or former employees (or their beneficiaries). Neither Pyramid nor any
ERISA Affiliate maintains, has established, or has participated in within the
six (6) years preceding the Closing, a "multiple employer welfare arrangement,"
as defined in Section 3(40)(A) of ERISA.
(e) As of the last valuation date prior to the date hereof, the
market value of assets under each Benefit Plan which is subject to Title IV of
ERISA (other than any multiemployer plan) is not less than the present value of
all liabilities thereunder determined for purposes of the minimum funding
requirements of Section 412 of the Code and Statement of Financial Accounting
Standards No. 87.
SECTION 2.10 LITIGATION. Any and all litigation, actions, suits and
proceedings involving Pyramid as of the date of this Agreement are listed in
Section 2.10 of the Disclosure Schedule. Except as disclosed in Section 2.10 of
the Disclosure Schedule, as of the date of this Agreement there is no action,
suit or proceeding pending or, to the knowledge of Seller or Pyramid,
threatened, involving Seller or any of Seller's affiliates (as hereinafter
defined) by or before any arbitrator or Governmental Entity or by any third
party that (i) challenges the validity of or seeks to prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement or (ii)
is reasonably likely to have a Pyramid Material Adverse Effect. As used in this
Agreement, an "affiliate" of, or a person "affiliated" with, a specified person,
is a person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is
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under common control with, the person specified. For purposes of the foregoing
definition, the term "control" (including the terms "controlling," "controlled
by" and "under common control with") means the possession, direct or indirect,
of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or
otherwise.
SECTION 2.11 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.
(a) Pyramid is not in default or violation of any term, condition or
provision of: (i) its articles of incorporation or by-laws; (ii) any of its
Material Agreements (as hereinafter defined); (iii) any statute, law, rule,
regulation, judgment, decree, order, arbitration award, or Permit (as
hereinafter defined) applicable to Pyramid including, without limitation, laws,
rules and regulations relating to the environment, occupational health and
safety, employee benefits, wages, workplace safety, equal employment opportunity
and race, religious or sex discrimination, excluding from the foregoing clauses
(ii) and (iii), defaults or violations which would not reasonably be expected to
have a Pyramid Material Adverse Effect. Except as set forth in Section 2.11(a)
of the Disclosure Schedule, Pyramid has not received any written notice from any
Governmental Entity alleging any violation of the type described in clause (iii)
above or directing Pyramid to take any remedial action, in any case which has
not been settled or otherwise finally resolved or which would reasonably be
expected to have a Pyramid Material Adverse Effect.
(b) Pyramid has been duly authorized by all applicable state
insurance regulatory authorities to issue the insurance policies that it is
currently writing in the respective states in which it conducts its business,
except for authorizations the failure to have which would not, individually or
in the aggregate, have a Pyramid Material Adverse Effect. Pyramid has all other
material licenses, permits, consents, approvals and authorizations of any
Governmental Entity ("Permits") necessary to conduct its business in the manner
and in the jurisdictions in which it is presently being conducted, and all such
Permits are valid and in full force and effect, except where the failure to have
such a Permit or the invalidity or ineffectiveness thereof would not,
individually or in the aggregate, have a Pyramid Material Adverse Effect.
SECTION 2.12 TAXES.
Except as disclosed in Section 2.12 of the Disclosure Schedule:
(a) Pyramid has: (i) timely filed or caused to be filed all Tax
Returns (as hereinafter defined) required to be filed by it for all fiscal
periods ended before the Closing Date, and all such returns were true, correct
and complete in all material respects when filed, and (ii) paid or accrued (in
accordance with SAP) all Taxes (as hereinafter defined) shown to be due on such
Tax Returns other than such Taxes that are being contested in good faith by
Pyramid.
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(b) There are no ongoing federal, state, local or foreign audits or
examinations of any Tax Return of Pyramid or any consolidated Tax Return in
which Pyramid has joined.
(c) There are no outstanding written requests, agreements, consents
or waivers to extend the statutory period of limitations applicable to the
assessment of any Taxes or deficiencies against Pyramid and no written notice of
any claim for Taxes, whether pending or threatened, has been received.
(d) Pyramid is not a party to any agreement providing for the
allocation or sharing of Taxes and is not otherwise liable or obligated to
indemnify any person or entity with respect to any Taxes.
(e) There are no liens for Taxes upon the assets of Pyramid which
are not provided for in the SAP Financial Statements.
(f) "Tax" or "Taxes" shall mean any and all taxes, charges, fees,
levies or other assessments, including, without limitation, gross income, net
income, gross receipts, premium, privilege, excise, real or personal property,
sales, withholding, employment, unemployment, social security, occupation, use,
service, service use, value added, license, net worth, payroll, franchise,
transfer and recording taxes, fees and charges, imposed by the United States
Internal Revenue Service or any taxing authority (including, without limitation,
any state or local government or any subdivision or taxing agency thereof),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, fines, penalties or additional
amounts attributable to, or imposed upon, or with respect to, any such taxes,
charges, fees, levies or other assessments. "Tax Return" shall mean any report,
return, document, declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes.
SECTION 2.13 PROPERTIES USED IN BUSINESS. Pyramid has sufficient
title, leaseholds or rights to all real and tangible personal property used by
it to conduct its business as currently conducted in all material respects.
Section 2.13 of the Disclosure Schedule lists all real property owned or leased
by Pyramid (the "Real Property"). All tangible personal property used by Pyramid
in conducting its business has been adequately maintained for its continued use,
reasonable wear and tear excepted.
With respect to the Real Property:
(a) there is no pending condemnation or similar proceeding affecting
the Real Property or any portion thereof, and Pyramid has not received any
written notice, and has no knowledge, that any such proceeding is contemplated;
(b) except as disclosed in Section 2.13 of the Disclosure Schedule,
there are no Material Agreements (as defined in Section 2.15 below) which affect
any portion of the Real Property. With respect to any such contract, following
Purchaser's written request delivered to Seller,
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Seller shall, and shall cause Pyramid to, use its reasonable best efforts to
cancel the contract or cause it to be so amended that it may be unilaterally
cancelled by Purchaser after Closing upon not more than 30 days' written notice
without penalty to Purchaser;
(c) except as disclosed in Section 2.13 of the Disclosure Schedule,
no work has been performed or is in progress by Pyramid at, and no materials
have been furnished to, the Real Property which would give rise to any material
Encumbrances against the Real Property;
(d) except as disclosed in Section 2.13 of the Disclosure Schedule,
there are no parties in possession of the Real Property or any part thereof
other than Pyramid, and no party has been granted any license, lease or other
right relating to the use or possession of the Real Property;
(e) to Seller's and Pyramid's knowledge, there are no violations of
any federal, state, county or municipal law, ordinance, order, regulation or
requirement affecting any portion of the Real Property, and no written notice of
any such violation has been received by Pyramid from any Governmental Entity,
except for any such violations which would not reasonably be expected to have a
Pyramid Material Adverse Effect; and
(f) the Real Property is currently zoned for its current use and
Pyramid has received no notice of any alleged zoning violations.
SECTION 2.14 INTELLECTUAL PROPERTY. Pyramid did not and does not
utilize any patent, trademark, tradename, service mark, copyright, trade secret,
know-how, or software material to Pyramid's operations as currently conducted
except for those listed on Section 2.14 of the Disclosure Schedule (the "Pyramid
Intellectual Property"), all of which are either owned or properly licensed by
Pyramid and, in the case of Pyramid Intellectual Property owned by Pyramid, such
ownership is free and clear of any and all Encumbrances. To the knowledge of
Seller and Pyramid, Pyramid does not infringe upon or unlawfully or wrongfully
use any patent, trademark, tradename, service mark, copyright or trade secret
owned or claimed by another. Pyramid is not in default under, and has not
received any notice of any claim of infringement or any other claim or
proceeding relating to any such patent, trademark, tradename, service mark,
copyright, or trade secret. To the knowledge of Seller and Pyramid, no present
or former employee of Pyramid and no other person owns or has any proprietary,
financial or other interest, direct or indirect, in whole or in part, in any
patent, trademark, tradename, service mark or copyright, or in any application
therefor, or in any trade secret, which Pyramid owns, possesses or uses in its
operations as now or heretofore conducted. Section 2.14 of the Disclosure
Schedule lists all material confidentiality or non-disclosure agreements to
which Pyramid or any of Pyramid's employees is a party which relates to the
business or operations of Pyramid. Pyramid has such ownership of or such rights
by license, lease or other agreement to the Pyramid Intellectual Property as is
necessary to permit it to conduct its business as currently conducted, except
where the failure to have such rights would not have a Pyramid Material Adverse
Effect.
SECTION 2.15 CONTRACTS. Seller has delivered or made available to
Purchaser or will make available to Purchaser during the On-Site Period (as
defined in Section 4.2) copies of all
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written Material Agreements (as hereinafter defined). Except as set forth in
Section 2.15 of the Disclosure Schedule, each Material Agreement is in full
force and effect and, to the knowledge of Seller and Pyramid, is valid and
enforceable by Pyramid in accordance with its terms. Except as set forth in
Section 2.15 of the Disclosure Schedule, Pyramid is not in default in the
observance or the performance of any term or obligation to be performed by it
under any Material Agreement except for such defaults the effect of which,
individually or in the aggregate, would not have a Pyramid Material Adverse
Effect. To the knowledge of Seller and Pyramid, no other person is in default in
the observance or the performance of any term or obligation to be performed by
it under any Material Agreement. As used in this Agreement, "Material Agreement"
shall mean each agreement, arrangement, instrument, bond, commitment, franchise,
indemnity, indenture, lease, license or understanding to which Pyramid is a
party or to which any of its properties is subject, that: (i) obligates Pyramid
to pay an amount in excess of $75,000 in any twelve-month period beginning after
December 31, 1998; (ii) provides for the extension of credit by or to Pyramid in
excess of $75,000; (iii) provides for a guaranty by Pyramid of obligations of
others in excess of $75,000; (iv) constitutes an employment agreement, severance
agreement or personal service contract not terminable on less than sixty (60)
days' notice without penalty; (v) constitutes a reinsurance agreement or treaty
under which Pyramid is a reinsured or is the reinsurer, or (vi) expressly
limits, in any material respect, the ability of Pyramid to engage in any line of
business, compete with any person or expand the nature or geographic scope of
its business. Notwithstanding the foregoing, the term "Material Agreement" does
not include insurance policies issued by, or agreements with insurance agents
and brokers entered into by, Pyramid in the ordinary course of business.
SECTION 2.16 LABOR MATTERS. Pyramid is not a party to, or bound by,
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, and there is no unfair
labor practice or labor arbitration proceeding pending or, to the knowledge of
Seller or Pyramid, threatened against Pyramid.
SECTION 2.17 RESERVES. All insurance reserves reflected in the SAP
Financial Statements have been computed in all material respects in accordance
with SAP and in accordance with sound loss reserving principles, consistently
applied; PROVIDED that the foregoing representation does not and is not intended
to constitute in any way a representation or guaranty as to the adequacy or
sufficiency of the insurance reserves of Pyramid.
SECTION 2.18 INSURANCE PRODUCERS. Section 2.18 of the Disclosure
sets forth a summary description of the compensation arrangements in place on
the date of this Agreement with Pyramid's insurance agents, managers, brokers
and other producers, which summary is true and complete in all material
respects. Seller has provided to Purchaser copies of each form of agreement in
place on the date of this Agreement between Pyramid and its insurance producers.
SECTION 2.19 CERTIFICATES OF AUTHORITY. Section 2.19 of the
Disclosure Schedule lists all active licenses (including, without limitation,
licenses and Certificates of Authority from insurance regulatory authorities ),
permits or authorizations to transact the business of insurance (the
"Certificates of Authority," and each a "Certificate of Authority"), and sets
forth the lines of
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insurance which are permitted to be written with respect to each such
Certificate of Authority. Except as otherwise described in Section 2.19 of the
Disclosure Schedule, no Certificate of Authority identified in such Schedule has
been revoked, restricted, suspended, limited or modified nor is any Certificate
of Authority the subject of, nor to the knowledge of Seller or Pyramid is there
a reasonable basis for, a proceeding for revocation, restriction, suspension,
limitation or modification, nor, to the knowledge of Seller or Pyramid, has any
such proceeding been threatened by any licensing authority, nor is Pyramid
operating under any formal or informal agreement or understanding with any
insurance regulatory authority which restricts its authority to do business or
to take, or refrain from taking, any action.
SECTION 2.20 RELATED PARTY TRANSACTIONS. Except as disclosed in
Section 2.20 of the Disclosure Schedule, Pyramid has made no loans to any of its
officers, directors or employees or the officers, directors or employees of any
affiliate (as defined in Section 2.10) of Pyramid which remain outstanding nor
has Pyramid entered into any contract, commitment or understanding with Seller
or any affiliate of Seller for the purchase or sale of property or services or
reinsurance from or to Seller or any affiliate of Seller or any such director,
officer or employee.
SECTION 2.21 YEAR 2000 READINESS.
(a) "Year 2000 Problem" shall mean the failure of computer hardware,
software or equipment containing embedded microchips used by Pyramid in the
operation of its business (collectively, "Systems") to process dates or time
periods occurring after December 31, 1999 at least as effectively and reliably
as such Systems process dates or time periods occurring before January 1, 2000,
including the making of leap year calculations.
(b) Seller has reviewed Pyramid's operations with a view towards
assessing whether its Systems are vulnerable to a Year 2000 Problem. Seller has
taken all actions necessary and committed resources adequate to assure that
Pyramid's Systems are free of Year 2000 Problems that could cause a Pyramid
Material Adverse Effect. Seller has a reasonable basis to believe that no Year
2000 Problem will cause a Pyramid Material Adverse Effect. Pyramid has inquired
of its principal suppliers as to the Year 2000 readiness of such suppliers and
has made or will make available to Purchaser copies of any written responses
received from such suppliers regarding their readiness; provided that, nothing
herein shall be construed as a representation or warranty by Seller or Pyramid
as to the Year 2000 readiness of any such supplier.
SECTION 2.22 BROKERS OR FINDERS. Neither Seller nor Pyramid has
retained or engaged any agent, broker, finder, investment banker, financial
advisor or other similar firm or person in connection with any of the
transactions contemplated by this Agreement.
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SECTION 2.23 INSURANCE; REINSURANCE; CLAIMS AND SERVICE AGREEMENTS.
(a) Section 2.23(a) of the Disclosure Schedule contains a complete
and correct list of all types of insurance policy products material to Pyramid's
current operations issued by Pyramid on or after January 1, 1994 and currently
in force or currently issuable by Pyramid. Seller has made or will make
available to Purchaser complete and correct copies of all forms of insurance
policy products material to Pyramid's current operations together with all forms
of endorsements used in connection with such forms.
(b) Section 2.23(b) of the Disclosure Schedule contains a complete
and correct list of all reinsurance agreements to which Pyramid is a party.
Copies of all such reinsurance agreements have been or will be made available to
Purchaser.
(c) Section 2.23(c) of the Disclosure Schedule contains a complete
and correct list of all claims and service administration agreements to which
Pyramid is a party. Copies of all such claims and service administration
agreements have been or will be made available to Purchaser.
(d) No default of or breach by Pyramid or, to the knowledge of
Seller and Pyramid, by any other party under any such reinsurance agreement or
claims and service administration agreement has occurred and, to the knowledge
of Seller and Pyramid, no basis currently exists for the declaration of any
default or termination right thereunder, except for agreements that, prior to
the Closing Date, have or will have expired by their terms or have been
terminated in accordance with this Agreement, and, to the knowledge of Seller
and Pyramid, each party to such reinsurance agreement was, at the date each
reinsurance agreement was executed and delivered, and is currently solvent and
financially capable of fulfilling its obligation thereunder.
(e) Pyramid has not written any insurance policy or coverage that
does not comply in all material respects with any terms and conditions set forth
for such insurance in the reinsurance agreement or agreements, if any, pursuant
to which such policy or coverage is reinsured. Pyramid has not written any
insurance policy or coverage that has not been reinsured, at least in part,
pursuant to a reinsurance agreement identified in Section 2.23(b) of the
Disclosure Schedule, except where the failure to so reinsure would not have a
Pyramid Material Adverse Effect.
SECTION 2.24 ENVIRONMENTAL MATTERS. Except as disclosed in Section
2.24 of the Disclosure Schedule, Pyramid has conducted and is conducting its
business in compliance in all material respects with all applicable federal,
state and local laws, regulations and requirements currently in force relating
to the protection of the environment ("Environmental Laws") and there is no
pending, or to the knowledge of Seller, threatened, civil or criminal
litigation, written notice of violation, or administrative proceeding relating
to such Environmental Laws involving Pyramid which would reasonably be expected
to have a Pyramid Material Adverse Effect. There is no condition existing with
respect to the release, emission, discharge or presence of hazardous substances
in connection with the business of Pyramid or any of the properties currently or
previously owned by Pyramid which would have a Pyramid Material Adverse Effect.
Pyramid
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has received all approvals, consents, licenses, and permits with respect to
environmental matters necessary to carry on its business substantially as
currently conducted, other that any such approvals, consents, licenses or
permits the failure of which to receive would not, individually or in the
aggregate, have a Pyramid Material Adverse Effect.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to Seller, at and as of the date
hereof and again at and as of the Closing Date, as follows:
SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION.
Purchaser has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by Purchaser of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly authorized by all necessary
corporate proceedings, and no other corporate action on the part of Purchaser or
its shareholders is necessary to authorize the execution and delivery by
Purchaser of this Agreement and the consummation by it of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser (and assuming due and valid authorization, execution and delivery
hereof by Seller) is a valid and binding obligation of Purchaser enforceable
against it in accordance with its terms, except that: (i) such enforcement may
be subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
SECTION 3.3 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for: (a)
filings pursuant to the HSR Act, (b) approvals or consents of Governmental
Entities under insurance holding company laws of the State of Kansas, (c)
filings of such pre-acquisition notifications as may be required in certain
states, and (d) matters specifically described in the written schedule delivered
by Purchaser to Seller at or prior to the execution of this Agreement and
attached hereto (the "Purchaser's Consent Schedule"), neither the execution,
delivery or performance of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will require on the part of
Purchaser any filing or registration with, notification to, or authorization,
consent or approval of, any Governmental Entity. Except as described in
Purchaser's Consent Schedule, neither the execution, delivery or performance of
this Agreement by Purchaser nor the consummation by Purchaser of the
transactions contemplated hereby will: (i) violate any provision of the articles
of incorporation or by-laws of Purchaser; (ii) result in a violation or breach
of, or constitute (with or without due notice or lapse
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of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation that is material to Purchaser and to which
Purchaser is a party or by which its properties or assets may be bound; (iii)
violate any order, writ, judgment, injunction, decree, law, statute, rule or
regulation applicable to Purchaser or any of its properties or assets; or (iv)
except in the case of clauses (ii) and (iii) for such violations, breaches or
defaults which, or filings, registrations, notifications, authorizations,
consents or approvals the failure of which to obtain which would not materially
adversely affect the ability of Purchaser to consummate the transactions
contemplated by this Agreement.
SECTION 3.4 ACQUISITION FOR INVESTMENT. Purchaser is acquiring the
Shares solely for its own account and not with a view to any distribution or
other disposition of such Shares, and the Shares will not be transferred except
in a transaction registered or exempt from registration under the Securities Act
of 1933, as amended.
SECTION 3.5 FINANCING. Purchaser has sufficient funds available to
it to finance the purchase of the Shares as contemplated by this Agreement.
SECTION 3.6 BROKERS OR FINDERS. Neither Purchaser or any of its
subsidiaries or affiliates has retained or engaged any agent, broker, finder,
investment banker, financial advisor or other similar firm or person in
connection with any of the transactions contemplated by this Agreement, except
for Philo Smith & Co., Inc., whose fees and expenses will be paid by Purchaser
in accordance with Purchaser's agreement with such firm.
SECTION 3.7 EXCLUSIVITY OF SELLER'S REPRESENTATIONS. In entering
into this Agreement, Purchaser acknowledges and agrees that: (i) Seller makes no
representations or warranties relating in any way to Pyramid or the Shares
except as specifically set forth in Article II and the related Disclosure
Schedule and neither Seller, Pyramid, nor any of their affiliates, nor any
persons acting on their behalf, has made or is authorized to make any other
representations or warranties; and (ii) neither Seller, Pyramid nor any of their
affiliates shall be liable to Purchaser in contract, tort or otherwise for any
information supplied to Purchaser or any statements made to Purchaser except for
information or statements contained in Article II and the Disclosure Schedule
subject, in each case, to the limitations and requirements for indemnification
contained in this Agreement.
ARTICLE IV
COVENANTS
SECTION 4.1 INTERIM OPERATIONS OF PYRAMID. Seller covenants and
agrees that, except: (i) as contemplated by this Agreement, (ii) as disclosed in
the Disclosure Schedule, or (iii) with the prior written consent of Purchaser,
after the date hereof and prior to the Closing Date:
(a) the business of Pyramid shall be conducted only in the ordinary
and usual course;
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(b) Pyramid will not amend its articles of incorporation or by-laws;
(c) Pyramid will not: (i) split, combine or re-classify the Shares;
(ii) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to the Shares; (iii) issue or sell any
additional shares of, or securities convertible into or exchangeable for, or
options, warrants, calls, commitments or rights of any kind to acquire, the
Shares; or (iv) redeem, purchase or otherwise acquire directly or indirectly any
of its capital stock;
(d) Pyramid will not: (i) adopt any new employee benefit plan
(including any stock option, stock benefit or stock purchase plan) or amend in
any material respect any existing employee benefit plan sponsored by it, except
as may be required by applicable law, or (ii) increase any compensation, award
or pay any bonuses or enter into or amend any employment, severance, termination
or similar agreement with any of its present or future officers, directors or
employees, except for normal compensation increases in the ordinary and usual
course of business and the payment of cash bonuses to employees pursuant to and
consistent with existing plans or practices;
(e) except as may be required or contemplated by this Agreement or
in the ordinary and usual course of business, Pyramid will not acquire, sell,
lease or dispose of any assets which in the aggregate are material to Pyramid;
(f) Pyramid will not: (i) incur or assume any long-term or
short-term debt or issue any debt securities; (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the material obligations of any other person except in the
ordinary and usual course of business consistent with past practice in an amount
not material to Pyramid; (iii) make any material loans, advances or capital
contributions to, or investments in, any other person other than in the ordinary
and usual course of business consistent with past practice; (iv) pledge or
otherwise encumber the Shares; or (v) mortgage or pledge any of its material
assets, tangible or intangible, or create any material Encumbrance of any kind
with respect to any such asset;
(g) Pyramid will not: (i) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership or other business
organization or division thereof or any equity interest therein (other than
purchases of marketable securities in the ordinary course of business); (ii)
authorize or make any new capital expenditures in excess of $50,000 in the
aggregate except for those capital expenditures already planned or committed to
on the date of this Agreement and which are listed in Section 4.1(g) of the
Disclosure Agreement; or (iii) enter into or amend any contract, agreement,
commitment or arrangement providing for the taking of any action which would be
prohibited hereunder;
(h) Pyramid will not adopt a plan of complete or partial liquidation
or resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization;
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(i) Pyramid will not materially change any of the accounting methods
used by it unless required by SAP or applicable law;
(j) except for the settlement in the ordinary course of its business
of claims made under insurance policies issued or assumed by Pyramid, Pyramid
will not settle or compromise any claim or litigation, which after insurance
reimbursement is material to Pyramid, without the prior written consent of
Purchaser, which consent will not be unreasonably withheld;
(k) neither Seller nor Pyramid will authorize or enter into an
agreement to do any of the foregoing;
(l) the Real Property will be reasonably maintained in at least as
good a condition and state of repair as existing on the date hereof;
(m) Pyramid will not enter into any Material Agreement with respect
to the operation or maintenance of any portion of the Real Property; and
(n) Pyramid will not create any material Encumbrance with respect to
the Real Property in any manner whatsoever.
SECTION 4.2 ON-SITE DUE DILIGENCE.
Purchaser acknowledges that it has performed a preliminary due
diligence review of Pyramid based on documents and other information supplied to
Purchaser by Seller's ultimate parent company, Unitrin, Inc. ("Unitrin"). In
order to permit Purchaser the opportunity to perform a confirmatory due
diligence investigation at Pyramid's offices, for a period of fifteen (15)
business days after the date of this Agreement (the "On-Site Period"), Seller
shall cause Pyramid to afford Purchaser's officers, employees, accountants,
counsel and other authorized representatives full and complete access during
normal business hours to Pyramid's offices, employees, properties, contracts,
commitments, books and records and to use all reasonable efforts to cause
Pyramid's representatives to furnish promptly to Purchaser such additional
financial and operating data and other information as to Pyramid's businesses
and properties as Purchaser or its duly authorized representatives may from time
to time reasonably request; PROVIDED, HOWEVER, that nothing herein shall require
Seller or Pyramid to disclose any information to Purchaser if such disclosure
would be in violation of applicable laws or regulations of any Governmental
Entity. Unless otherwise required by law and until the Closing Date, Purchaser
will hold any such information which is nonpublic in confidence in accordance
with the provisions of the Confidentiality Agreement between Unitrin and
Purchaser, entered into on April 20, 1999 (the "Confidentiality Agreement").
During the On-Site Period, Purchaser shall have reasonable access to the Real
Property for the purpose of inspecting the condition of the Real Property. In
this connection, Purchaser's inspection rights shall include performing soil
tests, environmental tests or audits, structural or mechanical inspections and
such other inspections as Purchaser may reasonably require. Seller shall make
available to Purchaser (i) copies of the most recent tax statements from all
taxing authorities having jurisdiction over the
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Real Property, (ii) copies of all Material Agreements and leases which affect
any portion of the Real Property, and (iii) copies of any site plans, surveys,
soil studies, and plans and specifications of any kind in Pyramid's possession.
At the conclusion of the On-Site Period, unless expressly objected to in a
written notice delivered by Purchaser to Seller within five (5) business days
after the end of the On-Site Period, Purchaser will be deemed: (i) to have been
afforded reasonable access to the books, records, personnel, facilities and
other things reasonably related to the Shares and the business and affairs of
Pyramid; (ii) to have been given a reasonable opportunity to ask questions
relating to the Shares and the business and affairs of Pyramid and to receive
answers thereto; and (iii) to be satisfied with the results of its due diligence
review of the Shares and the business and affairs of Pyramid. In the event that
Purchaser delivers a timely written objection to any of the foregoing to Seller,
then the following procedures shall apply. If Purchaser's objection relates to
matters described in clauses (i) or (ii) above, then the On-Site Period shall be
extended for up to an additional five (5) business days to allow Purchaser to
complete its confirmatory due diligence to its reasonable satisfaction. If
Purchaser's objection relates to the results of its confirmatory due diligence,
Purchaser's sole and exclusive remedy shall be as provided in Section 7.1(d) to
the extent applicable. Notwithstanding the foregoing, a reasonable number of
days shall be added to the On-Site Period to the extent warranted by the subject
matter of any notice given by Seller to Purchaser pursuant to Section 4.7
hereof.
SECTION 4.3 TAX MATTERS.
(a) TAX RETURNS. Seller shall prepare and file, or cause to be
prepared and filed, on a timely basis and in a manner consistent with prior
returns, all Tax Returns (and any amendments thereto) of Pyramid for taxable
periods ending on or before the Closing Date. Purchaser shall prepare and file,
or cause Pyramid to prepare and file, all Tax Returns (and any amendments
thereto) for taxable periods ending after the Closing Date.
(b) SELLER INDEMNIFICATION. Seller shall be liable for, and shall
indemnify and hold Purchaser and/or Pyramid harmless against, all Taxes of
Pyramid payable for any taxable year or taxable period ending on or before the
Closing Date, but only to the extent such Taxes exceed the amount of Taxes that
have been reserved for in the SAP books and records of Pyramid as of the Closing
Date. To appropriately apportion any income taxes relating to any taxable year
beginning before (and ending after) the Closing Date, the parties hereto shall
apportion such income taxes to the taxable period ending on or before the
Closing Date by a closing of Pyramid's books consistent with its past practice
for reporting items, except that exemptions, allowances or deductions that are
calculated on a time basis, such as the deduction for depreciation, shall be
apportioned on a time basis. To appropriately apportion any non-income taxes
relating to any taxable year beginning before (and ending after) the Closing
Date, the parties hereto shall apportion such non-income taxes to the taxable
period ending on or before the Closing Date as follows: (w) premium taxes shall
be accrued based on statutory premium recorded in the SAP books and records of
Pyramid, (x) AD VALOREM Taxes (including, without limitation, real and personal
property taxes) shall be accrued on a monthly basis over the period for which
such taxes are levied, or if it cannot be determined over the period such taxes
are being levied, over the fiscal period of the relevant taxing authority, in
each case irrespective of the lien
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or assessment date of such taxes, (y) all Taxes relating to actions outside the
ordinary course of business occurring on or after the Closing on the Closing
Date shall be apportioned to the period ending after the Closing Date, and (z)
franchise and other privilege taxes not measured by income shall be accrued on a
monthly basis over the period to which the privilege relates.
(c) PURCHASER INDEMNIFICATION. Except as otherwise provided in (a)
above, the Purchaser and Pyramid shall be liable for, and shall indemnify and
hold Seller and its affiliates harmless against, any and all Taxes imposed on
Pyramid relating or apportioned to any taxable year or portion thereof ending
after the Closing Date.
(d) REFUNDS OR CREDITS. Purchaser or Pyramid shall promptly pay to
Seller any refunds or credits (including interest thereon) relating to Taxes for
taxable periods ending on or prior to the Closing Date, but only to the extent
any such refund or credit exceeds the amount of Taxes that have been recorded in
the SAP books and records of Pyramid as of the Closing Date. For purposes of
this Section (c), the terms "refund" and "credit" shall include a reduction in
Taxes and the use of an overpayment of Taxes as an audit or other Tax offset.
Receipt of a refund shall occur upon the filing of a return or an adjustment
thereto using such reduction, overpayment or offset, or upon the receipt of
cash. Upon the reasonable request of Seller, Purchaser shall prepare and file,
or cause to be prepared and filed, all claims for refunds relating to such
Taxes; PROVIDED, HOWEVER, that Purchaser shall not be required to file such
claims for refund to the extent such claims for refund would have a Pyramid
Material Adverse Effect in future periods or to the extent the claims for refund
relate to a carryback of an item. Purchaser shall be entitled to all other
refunds and credits of Taxes; PROVIDED, HOWEVER, it will not allow the amendment
of any Tax Return relating to any Taxes for a period (or portion thereof) ending
on or prior to the Closing Date or the carryback of an item to a period ending
prior to Closing without Seller's prior written consent.
(e) MUTUAL COOPERATION. As soon as practicable, but in any event
within 30 days after either Seller's or Purchaser's request, as the case may be,
Purchaser shall deliver to Seller or Seller shall deliver to Purchaser, as the
case may be, such information and other data relating to the Tax Returns and
Taxes of Pyramid and shall provide such other assistance as may reasonably be
requested, to cause the completion and filing of all Tax Returns or to respond
to audits by any taxing authorities with respect to any Tax Returns or taxable
periods or to otherwise enable Seller, Purchaser or Pyramid to satisfy their
accounting or Tax requirements. From and after the Closing until the applicable
statute of limitations has expired, Purchaser and Seller shall, and shall cause
their affiliates to, maintain and make available to the other party, on such
other party's reasonable request, copies of any and all information, books and
records referred to in this Section 4.3(e). After the applicable statute of
limitations has expired (taking into account any agreements with any taxing
authorities to extend said period), Purchaser or Seller may dispose of such
information, books and records, provided that prior to such disposition,
Purchaser or Seller shall give the other party prior written notice of its
intent to dispose and the opportunity to take possession of such information,
books and records. If Seller is responsible for filing an income tax return
which requires the signature of an officer of Pyramid, Seller shall present a
completed version of such return for the signature of the officer and shall
supply any support for such return
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the officer may reasonably request. Such officer shall sign the return and
deliver it to Seller not later than five (5) days after Seller's delivery to
such officer of the completed return and any requested support for such return.
(f) CONTESTS. Whenever any taxing authority asserts a claim, makes
an assessment, or otherwise disputes the amount of Taxes for which Seller is or
may be liable under this Agreement, Purchaser shall, if informed of such an
assertion, promptly inform Seller, and Seller shall have the right to control
any resulting proceedings (at its sole expense) and to determine whether and
when to settle any such claim, assessment or dispute to the extent such
proceedings or determinations affect the amount of Taxes for which Seller may be
liable under the Agreement, PROVIDED, HOWEVER, should a settlement increase the
amount of Taxes owed by Pyramid for taxable periods ending after the Closing
Date, then Seller must receive the consent of Purchaser prior to consummating
any such settlement, which consent shall not be unreasonably withheld. Whenever
any taxing authority asserts a claim, makes an assessment or otherwise disputes
the amount of Taxes for which Purchaser is liable under this Agreement,
Purchaser shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute,
except to the extent such proceedings affect the amount of Taxes for which
Seller are liable under this Agreement.
(g) RESOLUTION OF DISAGREEMENTS BETWEEN SELLER AND PURCHASER. If
either Seller or Purchaser disagrees as to the amount of Taxes for which it may
be liable under this Agreement, it shall promptly consult the other party to
resolve such dispute. If any such point of disagreement cannot be resolved
within 60 days of the date of the initial consultation, Seller and Purchaser
shall within 10 days after such 60-day period jointly select a nationally
recognized independent public accounting firm other than KPMG LLP, Ernst & Young
or any other such firm then serving as the principal auditing firm for either
Seller or Purchaser (the "Accounting Firm"), to act as an arbitrator to resolve,
within 60 days after its selection, all points of disagreement concerning Tax
matters with respect to this Agreement and presented to such Accounting Firm at
the time of its selection. If the parties cannot agree on the selection of the
Accounting Firm within such ten-day period, then the parties shall request the
American Arbitration Association to select an Accounting Firm that so far as
possible otherwise satisfies the requirements set out in this paragraph. All
fees and expenses of the Accounting Firm (and, if necessary, the fees and
expenses of the American Arbitration Association) in rendering a decision
hereunder shall be borne equally by the parties.
(h) SURVIVAL OF OBLIGATIONS. The obligations of the parties set
forth in this Section 4.3 shall be unconditional and absolute, and shall remain
in effect indefinitely subject to applicable statutes of limitation.
(i) PRE-CLOSING DIVIDEND TAX REIMBURSEMENT. In addition to the
Purchase Price, Purchaser shall pay to Seller $ 272,500 on the Closing Date,
representing the estimated amount of Taxes payable by Seller pursuant to Section
805(a)(4)(D) of the Code as a result of the Pre- Closing Dividend. Purchaser
shall pay such amount to Seller by wire transfer of immediately available funds
to an account or accounts designated by Seller.
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(j) TAX TREATMENT OF REINSURANCE TRANSACTION. For Tax purposes, both
Seller and Purchaser shall treat the Reinsurance Transaction described in
Sections 4.6 and 6.3(e) of this Agreement as occurring on the calendar day
immediately following the Closing Date in a manner consistent with Section
1.1502-76(b)(1)(ii)(B) of the Code.
SECTION 4.4 EMPLOYEE MATTERS.
(a) Purchaser agrees to give any Pyramid employees whom Purchaser
elects not to retain in the employ of Pyramid following the Closing Date
reasonable advance notice of their intended termination dates, but in no event
less than 30 days' notice, and Purchaser further agrees to comply with all
applicable "plant closing" and other laws governing the termination of
employees. Purchaser will provide severance benefits in accordance with the
schedule of severance benefits attached hereto and made a part hereof to all
terminated Pyramid employees, with the exception of any such terminated Pyramid
employees who become employed directly by Unitrin on the Closing Date.
(b) With respect to any employee benefits that are provided after
the Closing Date to Pyramid's employees under any of the employee benefit plans,
programs, policies and arrangements, including vacation policies, of Purchaser
or its affiliates ("Purchaser Plans"), service accrued by Pyramid's employees
during their employment by Pyramid prior to the Closing Date shall be recognized
by Purchaser for purposes of determining eligibility and vesting in Purchaser
Plans, but not for purposes of benefit accruals thereunder. Purchaser shall
cause each Purchaser Plan to waive: (i) any preexisting condition restriction
which was waived under the terms of any analogous Benefit Plan immediately prior
to the Closing, or (ii) waiting period limitation which would otherwise be
applicable to a Pyramid employee on or after the Closing to the extent such
Pyramid employee had satisfied any similar waiting period limitation under an
analogous Benefit Plan prior to the Closing. Pyramid employees shall also be
given credit for any deductible or co-payment amounts paid in respect of the
Benefit Plan year in which the Closing occurs, to the extent that, following the
Closing, they participate in any Purchaser Plan for which deductibles or
co-payments are required. For purposes of this Agreement, "Pyramid employees"
shall include those Pyramid employees who, as of immediately prior to the
Closing Date, are on lay-off, disability or leave of absence, paid or unpaid.
(c) Effective upon Closing, Seller shall cause Pyramid to terminate
its participation in all employee benefit plans sponsored or maintained by any
affiliate of Pyramid, including the Unitrin, Inc. Pension Plan, the Unitrin 401K
Savings Plan and appropriate welfare benefit plans.
(d) Following the Closing: (i) Seller shall indemnify and hold
Purchaser and its ERISA Affiliates harmless against all Losses (as defined in
Section 5.1(a) ) arising under or with respect to any Benefit Plan, including
Losses arising out of or due to any inaccuracy of any representation or the
breach of any warranty arising under Section 2.9, and for any failure to comply
with the notice and healthcare continuation coverage requirements of Section
4980B of the Code and Part 6 of Subtitle B of Title I of ERISA with respect to
any Benefit Plan, in each case to the extent such Losses arise out of events or
circumstances that occur on or prior to the Closing Date; and (ii) Purchaser
shall indemnify and hold Seller and its ERISA Affiliates
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harmless against all Losses arising under or with respect to any Benefit Plan,
and for any failure to comply with the notice and healthcare continuation
coverage requirements of Section 4980B of the Code and Part 6 of Subtitle B of
Title I of ERISA with respect to any Benefit Plan, in each case to the extent
such Losses arise out of events or circumstances that occur after the Closing
Date. For purposes of clause (ii) of the preceding sentence, Benefit Plan and
ERISA Affiliate shall be determined by taking into account the change in
ownership of Pyramid resulting from the transaction contemplated by this
Agreement.
(e) The obligations of the parties set forth in this Section 4.4
shall be unconditional and absolute, and shall remain in effect indefinitely
subject to applicable statutes of limitation.
SECTION 4.5 PUBLICITY. Neither Purchaser nor Seller nor any of their
respective affiliates shall issue or cause the publication of any press release
or other public announcement with respect to this Agreement or the transactions
contemplated hereby without the prior agreement of the other party, except as
may be required by law.
SECTION 4.6 APPROVALS AND CONSENTS; COOPERATION.
(a) The parties hereto shall use all reasonable efforts, and
cooperate with each other, to obtain as promptly as practicable all Permits and
third-party consents necessary or advisable to consummate the transactions
contemplated by this Agreement, and each party shall keep the other apprised of
the status of matters relating to completion of the transactions contemplated
herein. Purchaser and Seller shall have the right to review in advance, and
shall consult with the other on, in each case subject to applicable laws
relating to the exchange of information, all the information relating to Seller,
Pyramid or Purchaser, as the case may be, and any of their respective
affiliates, which appear in any filing made with, or written materials submitted
to, any third party or any Governmental Entity in connection with the
transactions contemplated by this Agreement, provided, however, that nothing
contained herein shall be deemed to provide either party with a right to review
any information provided to any Governmental Entity on a confidential basis in
connection with the transactions contemplated hereby. The party responsible for
any such filing shall promptly deliver to the other party evidence of the filing
of all applications, filings, registrations and notifications relating thereto
(except for any confidential portions thereof), and any supplement, amendment or
item of additional information in connection therewith (except for any
confidential portions thereof). The party responsible for a filing shall also
promptly deliver to the other party a copy of each material notice, order,
opinion and other item or correspondence received by such filing party from any
Governmental Entity in respect of any such application (except for any
confidential portions thereof). If necessary to (i) complete Purchaser's
financing of the Purchase Price or (ii) permit payment of the Pre-Closing
Dividend and/or Post-Closing Dividend, Purchaser shall request approval from the
Kansas Insurance Department on a timely basis for a reinsurance transaction
between Pyramid and Reassurance Company of Hannover or such other reinsurer(s)
as is reasonably acceptable to Seller (the "Reinsurance Transaction"). The
Reinsurance Transaction will be structured to: (i) take effect immediately
following the Closing, (ii) provide coinsurance of not more than 45% of
Pyramid's policies in force as of the Closing Date and not more than 20% of
policies issued by
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Pyramid after the Closing Date, (iii) provide for a transfer of not more than
49% of Pyramid's assets to such reinsurer(s), and (iv) provide for a ceding
commission payable to Pyramid of up to $11 million on an after-tax basis.
(b) Seller and Purchaser shall take all actions necessary to file as
soon as practicable all notifications, filings and other documents required to
obtain all governmental authorizations, approvals, consents or waivers,
including, without limitation, under the HSR Act, and to respond as promptly as
practicable to any inquiries received from the Federal Trade Commission, the
Antitrust Division of the Department of Justice and any other Governmental
Entity for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any other Governmental
Entity in connection therewith.
(c) Without limiting the generality of the foregoing, within 20
business days after the date hereof, Purchaser shall make a Form A filing with
the Kansas Insurance Department with respect to the transactions contemplated
hereby. Purchaser shall promptly make any and all other filings and submissions
of information with state insurance departments which are required or requested
by such insurance departments to obtain the approvals required by such insurance
departments to consummate the transactions contemplated hereby. Seller agrees to
furnish or to cause Pyramid to furnish Purchaser with such information and
reasonable assistance as Purchaser may reasonably request in connection with its
preparation of such Form A filing and other filings or submissions. Purchaser
shall keep Seller fully apprised of its actions with respect to all such filings
and submissions and shall provide Seller with copies of such Form A filing and
other filings or submissions in connection with the transactions contemplated by
this Agreement, provided that Seller shall keep confidential any portions of
such filings indicated by Purchaser as confidential.
(d) Purchaser and Seller shall promptly advise each other upon
receiving any communication from any Governmental Entity whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement which causes such party to believe that there is a reasonable
likelihood that any requisite regulatory approval will not be obtained or that
the receipt of any such approval will be materially delayed.
SECTION 4.7 UPDATES BY SELLER. Seller shall give prompt notice to
Purchaser of: (i) the occurrence of any event or circumstance that constitutes a
Pyramid Material Adverse Effect, (ii) the occurrence or failure to occur of an
event that would cause any condition to the consummation of the transactions
contemplated by this Agreement not to be satisfied, (iii) any notice or other
communication received by Seller or Pyramid relating to a default or event
which, with notice or lapse of time or both, would become a default under any
Material Agreement, and (iv) any matter which, if it had occurred prior to the
date of this Agreement, would have been required to be included in the
Disclosure Schedule.
SECTION 4.8 FURTHER ASSURANCES. Each party hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement.
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SECTION 4.9 INTERCOMPANY AGREEMENTS AND BALANCES. Except as
otherwise expressly provided in this Section 4.9, as of or prior to the Closing,
other than with respect to Taxes, Seller shall (i) settle, or cause to be
settled, all intercompany balances between Pyramid, on the one hand, and Seller
and any of Seller's other affiliates, on the other hand, and (ii) terminate, or
cause to be terminated, each contract between Pyramid, on the one hand, and
Seller and any of Seller's other affiliates, on the other hand. Notwithstanding
the foregoing, Purchaser acknowledges that Pyramid currently administers the
group medical benefits program for Seller's parent company, Unitrin, and its
subsidiaries, and additionally performs accounting services for the Worksite
Products Division of Seller. Purchaser agrees that, for a period beginning at
Closing and ending December 31, 2000, it will cause Pyramid to continue such
benefit administration and accounting services on the same basis and for the
same charges as prior to the Closing. With respect to such benefit
administration and accounting services after Closing, Purchaser shall, and shall
cause Pyramid to, cooperate with Unitrin and use its reasonable best efforts in
facilitating Unitrin's transition of these functions to another service provider
prior to December 31, 2000.
SECTION 4.10. GAAP FINANCIAL STATEMENTS. Within thirty (30) business
days after the date of this Agreement, Seller shall cause to be prepared and
delivered to Purchaser annual financial statements for Pyramid based upon
generally accepted accounting principles for the years ended December 31, 1998,
1997 and 1996 (the "GAAP Financial Statements") and the independent auditors'
report issued by KPMG LLP relating to such GAAP Financial Statements. Within
five (5) business days of Seller's delivery of the GAAP Financial Statements and
auditors' report to Purchaser, Purchaser shall reimburse Seller for all costs
and expenses reasonably incurred by Seller in connection with the preparation of
the GAAP Financial Statements and auditors' report, including, without
limitation, the fees and expenses charged by KPMG LLP. Such reimbursement
obligation shall survive any termination of this Agreement. Notwithstanding
anything contained in this Section 4.10, Purchaser acknowledges and agrees that
no representation or warranty is or shall be made by Seller with respect to the
GAAP Financial Statements or any auditors' report or any information contained
therein whatsoever.
SECTION 4.11. COVENANT NOT TO NEGOTIATE SALE OF PYRAMID. During the
period between the date of this Agreement and the Closing Date, unless the
Agreement is otherwise terminated pursuant to Section 7.1 below, neither Pyramid
nor Seller will (i) solicit, initiate, encourage or accept the submission of any
proposal or offer from any person or party relating to the acquisition of
Pyramid or a substantial portion of the assets of Pyramid, or the Shares from
Seller, whether directly or indirectly, or any merger, consolidation or similar
transaction or (ii) 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 or party to do or seek
any of the foregoing. During such period, unless this Agreement is otherwise
terminated, Seller will notify Purchaser immediately if any person or party
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
SECTION 4.12. CERTAIN ENVIRONMENTAL REMEDIATION. With respect to
Pyramid's home office facility in Mission, Kansas identified in Section 2.13 of
the Disclosure Schedule, Seller shall cause Pyramid to use its best efforts to
effect prior to Closing the removal and disposal of
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all (i) spray-applied fireproofing material containing asbestos located in the
Mechanical and Boiler Rooms and (ii) thermal system insulation containing
asbestos located in the Supply Room.
ARTICLE V
INDEMNIFICATION
SECTION 5.1 INDEMNIFICATION. None of the provisions of this Section
5.1 shall apply to the claims, obligations, liabilities, covenants and
representations under Section 4.3 or 4.4, which shall be governed solely by the
terms thereof.
(a) INDEMNIFICATION BY SELLER. Subject to the limits and other
requirements set forth in this Section 5.1, Seller agrees to indemnify, defend
and hold Purchaser and Pyramid, and their respective officers, directors, agents
and affiliates, harmless from and in respect of any and all liabilities,
obligations, losses, damages, costs and reasonable expenses including, without
limitation, reasonable expenses of investigation and defense fees and
disbursements of counsel and other professionals (collectively, "Losses"), that
they may incur arising out of or due to (i) any inaccuracy of any representation
or the breach of any warranty, covenant, undertaking or other agreement of
Seller contained in this Agreement or the Disclosure Schedule and (ii) any
litigation commenced within one (1) year after the Closing Date in which Pyramid
is named as a party defendant and which arises solely out of the market conduct
practices of Seller and its other life and health insurance company affiliates
in connection with the sale of insurance policies not issued by Pyramid.
(b) INDEMNIFICATION BY PURCHASER. Subject to the limits and other
requirements set forth in this Section 5.1, Purchaser agrees to indemnify,
defend and hold Seller, its officers, directors, agents and affiliates, harmless
from and in respect of any and all Losses that they may incur arising out of or
due to any inaccuracy of any representation or the breach of any warranty,
covenant, undertaking or other agreement of Purchaser contained in this
Agreement.
(c) SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. The representations and warranties contained in Article II and
Article III shall survive the Closing Date and will remain in full force and
effect thereafter for a period of one year from the Closing Date except for the
representations and warranties contained in Section 2.3, which shall survive the
Closing Date indefinitely. The covenants contained in Article IV shall survive
the Closing Date and will remain in full force and effect for a period of one
year from the Closing Date except as otherwise specifically provided in Article
IV. All other agreements and undertakings in this Agreement shall survive the
Closing Date indefinitely.
(d) LIMITATIONS. Regardless of anything to the contrary contained in
this Agreement: (i) neither party shall be entitled to recover from the other
party under this Section 5.1 unless and until the total of all claims for Losses
with respect to any inaccuracy of any representations or the breach of any
warranties, covenants, undertakings or other agreements exceeds $500,000 and
then only for the amount by which such claims for Losses exceed $500,000; (ii)
neither party shall be entitled to recover from the other party more than the
Purchase Price in the aggregate
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pursuant to this Section 5.1, and (iii) neither party shall be obligated to
indemnify the other party for any consequential, incidental or punitive damages
sustained by such other party. Seller's indemnification obligations under
Section 5.1(a) shall be subject to the financial limitations set forth in this
Section 5.1(d), irrespective of whether the Losses covered by such
indemnification meet the definition of a "Pyramid Material Adverse Effect" as
set forth in Section 2.1.
(e) NOTICE AND OPPORTUNITY TO DEFEND. If there occurs an event that
a party asserts is an indemnifiable Loss pursuant to Section 5.1(a) or 5.1(b),
the party seeking indemnification (the "Indemnitee") shall notify the other
party obligated to provide indemnification (the "Indemnifying Party") promptly
but in all cases within the applicable survival period specified in Section
5.1(c). If such event involves any claim or the commencement of any action or
proceeding by a third person, the Indemnitee will permit the Indemnifying Party
to participate therein and, to the extent that it shall wish, to assume the
defense thereof, with counsel reasonably satisfactory to the Indemnitee and,
after notice to the Indemnitee of the Indemnifying Party's election to assume
the defense thereof, the Indemnifying Party shall not be liable to the
Indemnitee hereunder for any legal expenses of other counsel or any other
expenses subsequently incurred by Indemnitee in connection with the defense
thereof. The Indemnitee will cooperate fully with the Indemnifying Party and its
counsel in the defense against any such claim, action or proceeding. The
Indemnitee shall have the right to participate at its own expense in the defense
thereof but in no event shall an Indemnifying Party be liable for any settlement
effected by the Indemnitee without its consent.
(f) ADJUSTMENT FOR INSURANCE AND TAXES. The amount which an
Indemnifying Party is required to pay to, for or on behalf of an Indemnitee
pursuant to this Section 5.1 shall be adjusted (including, without limitation,
retroactively): (i) by any insurance proceeds actually recovered by or on behalf
of such Indemnitee or any of its affiliates in reduction of the related
indemnifiable Loss (the "Indemnifiable Loss"), and (ii) to take account of any
tax benefit realized as a result of any Indemnifiable Loss. If an Indemnitee or
any of its affiliates shall have been indemnified under this Section 5.1 in
respect of an Indemnifiable Loss and shall subsequently receive insurance
proceeds or realize any tax benefit in connection with such Indemnifiable Loss,
then the Indemnitee shall promptly notify the Indemnifying Party of the amount
and nature of such proceeds and benefits and pay to the Indemnifying Party the
amount of such insurance proceeds or tax benefit but in no event more than the
amount previously received by the Indemnitee under this Section 5.1 in respect
of the Indemnifiable Loss.
(g) Each Indemnitee shall be obligated to use all reasonable efforts
to mitigate to the fullest extent practicable the amount of any Loss for which
it is entitled to seek indemnification hereunder, and the Indemnifying Party
shall not be required to make any payment to an Indemnitee in respect of such
Loss to the extent such Indemnitee failed to comply with the foregoing
obligation.
(h) Upon making any indemnification payment, the Indemnifying Party
will, to the extent of such payment, be subrogated to all rights of the
Indemnitee against any third party in respect of the Loss to which the payment
relates; provided, however, that until the Indemnitee
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recovers full payment of its Loss, any and all claims of the Indemnifying Party
against any such third party on account of such payment are hereby made
expressly subordinated and subjected in right of payment of the Indemnitee's
rights against such third party. Without limiting the generality of any other
provision hereof, each Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence and perfect the above
described subrogation and subordination rights.
(i) Neither Seller nor Purchaser shall have any right to set-off any
Losses against any payments to be made by such party or parties pursuant to this
Agreement, except as otherwise expressly provided herein.
(j) Following the Closing, the indemnification provided for in
Section 5.1 hereof shall be the sole and exclusive remedies of Seller and
Purchaser and their respective officers, directors, employees, affiliates,
agents, representatives, successors and assigns for any inaccuracy of any
representation or any breach of any warranty, covenant, undertaking or other
agreement contained in this Agreement (except for the covenants contained in
Sections 4.3 and 4.4, which are separately governed by the terms thereof) and
neither Seller nor Purchaser shall be entitled to a recission of this Agreement
or to any further rights or remedies of any nature whatsoever in respect thereof
(whether by contract, common law, statute, law, regulation or otherwise) all of
which Seller and Purchaser hereby waive, provided nothing herein is intended to
waive any claims for intentional fraud.
ARTICLE VI
CONDITIONS
SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
CLOSING. The obligations of Seller, on the one hand, and Purchaser, on the other
hand, to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of the
following conditions:
(a) no arbitrator or Governmental Entity shall have issued any
order, decree or ruling, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the sale and transfer of the Shares by
Seller to Purchaser under this Agreement;
(b) any waiting period applicable to the transactions contemplated
hereby under the HSR Act shall have expired or been terminated;
(c) all authorizations, approvals or consents required to permit the
consummation of the transactions contemplated hereby shall have been obtained
and be in full force and effect, except where the failure to have obtained any
such authorizations, approvals or consents would not have a Pyramid Material
Adverse Effect; and
(d) each of Pyramid and Seller's affiliate, Unitrin Services Company
-- Unitrin Data Systems division ("USC"), shall have executed a written
agreement under which USC will
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provide computer and data processing services to Pyramid for a period of time
following the Closing, and such agreement shall be mutually satisfactory to
Purchaser and Seller in all respects.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The
obligations of Purchaser to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Purchaser) of the following further
conditions:
(a) the representations and warranties of Seller in this Agreement
that are not qualified as to materiality shall be true in all material respects
as of the Closing Date as if made at and as of such time (except for
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time, which need to be true in all
material respects only as of such date or with respect to such period);
(b) the representations and warranties of Seller in this Agreement
that are qualified as to materiality shall be true in all respects as of the
Closing Date as if made at and as of such time (except for representations and
warranties that address matters only as of a particular date or only with
respect to a specific period of time, which need to be true in all respects only
as of such date or with respect to such period);
(c) Seller shall have performed in all material respects the
obligations hereunder required to be performed by it at or prior to the Closing
Date;
(d) Pyramid shall not have suffered any Pyramid Material Adverse
Effect;
(e) Each member of Pyramid's board of directors shall have tendered
his resignation as a director in writing, effective as of the Closing;
(f) Purchaser shall have received a certificate signed by the
President or a Vice President of Seller, dated as of the Closing Date, to the
effect that the conditions set forth in paragraphs (a), (b), (c) and (d) of this
Section 6.2 have been satisfied, PROVIDED THAT, the officer signing such
certificate shall not be personally liable for its contents;
(g) Pyramid shall have secured written consents or waivers under, or
amendments of, all Material Agreements requiring any such consents, waivers or
amendments as the result of the transfer of the Shares pursuant to this
Agreement, all in a manner reasonably satisfactory in form and substance to
Purchaser in order to permit the consummation of the transactions contemplated
by this Agreement without adversely affecting the rights of Pyramid under any
such Material Agreement unless, in the reasonable opinion of Purchaser, any such
adverse effects, considered in the aggregate, would not result in a Pyramid
Material Adverse Effect;
(h) Seller shall have obtained the approval of the Kansas Insurance
Department for Pyramid to pay an extraordinary dividend immediately prior to
Closing in an amount up to $ 25,000,000 (the "Pre-Closing Dividend"), and such
Pre-Closing Dividend shall have been paid to Seller; and
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(i) Purchaser shall have obtained the approval of the Kansas
Insurance Department for Pyramid to pay an extraordinary dividend immediately
after the Closing (the "Post-Closing Dividend") in the amount of $10,000,000,
PROVIDED, HOWEVER, that in the event (x) such approval either is not obtained or
is for a lesser dividend amount, and (y) Purchaser has other funding resources
reasonably available to it which, together with the Post-Closing Dividend (if
any), are capable of providing funds equal to or in excess of $10,000,000, such
approval of the Post- Closing Dividend shall not be a condition to the
obligations of Purchaser hereunder.
SECTION 6.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations
of Seller to consummate the transactions contemplated hereby are subject to the
satisfaction (or waiver by Seller) of the following further conditions:
(a) the representations and warranties of Purchaser in this
Agreement that are not qualified as to materiality shall be true in all material
respects as of the Closing Date as if made at and as of such time (except for
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time, which need to be true in all
material respects only as of such date or with respect to such period);
(b) the representations and warranties of Purchaser in this
Agreement that are qualified as to materiality shall be true in all respects as
of the Closing Date as if made at and as of such time (except for
representations and warranties that address matters only as of a particular date
or only with respect to a specific period of time, which need to be true in all
respects only as of such date or with respect to such period);
(c) Purchaser shall have performed in all material respects all of
the obligations hereunder required to be performed by Purchaser, at or prior to
the Closing Date;
(d) Seller shall have received a certificate signed by the President
or a Vice President of Purchaser, dated as of the Closing Date, to the effect
that the conditions set forth in paragraphs (a), (b) and (c) of this Section 6.3
have been satisfied, PROVIDED THAT, the officer signing such certificate shall
not be personally liable for its contents; and
(e) If the Reinsurance Transaction is necessary to complete
Purchaser's financing of the Purchase Price or is necessary to permit payment of
the Pre-Closing Dividend and/or Post- Closing Dividend, (i) the structure of the
Reinsurance Transaction shall be reasonably satisfactory to Seller in all
respects, (ii) Purchaser shall have obtained the Kansas Insurance Department's
approval of the Reinsurance Transaction, if required, and (iii) and such
approval shall be reasonably satisfactory to Seller in all respects.
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ARTICLE VII
TERMINATION
SECTION 7.1 TERMINATION. Anything herein or elsewhere to the
contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated herein may be abandoned at any time prior to the Closing Date:
(a) by the mutual consent of Seller and Purchaser;
(b) by Seller or Purchaser;
(i) if the Closing shall not have occurred on or prior to
February 15, 2000; PROVIDED, HOWEVER, that the right to
terminate this Agreement under this Section 7. l(b)(i) shall
not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or
resulted in, the failure of the Closing to occur on or prior
to such date; or
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use
their best efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and
non-appealable;
(c) by Seller if Purchaser: (x) breaches or fails in any material
respect to perform or comply with any of its material covenants and agreements
contained herein, or (y) breaches its representations and warranties in any
material respect such that the conditions set forth in Section 6.1 or Section
6.3 would not be satisfied; PROVIDED, HOWEVER, that if any such breach is
curable by Purchaser through the exercise of its best efforts and for so long as
Purchaser shall be using its best efforts to cure such breach, the Seller may
not terminate this Agreement pursuant to this Section 7.1(c) as a result of such
breach; or
(d) by Purchaser if Seller: (x) breaches or fails in any material
respect to perform or comply with any of their material covenants and agreements
contained herein, or (y) breaches its representations and warranties in any
material respect and such breach would have a Pyramid Material Adverse Effect,
in each case such that the conditions set forth in Section 6.1 or Section 6.2
would not be satisfied; PROVIDED, HOWEVER, that if any such breach is curable by
Seller through the exercise of Seller's best efforts and for so long as Seller
shall be using its best efforts to cure such breach, Purchaser may not terminate
this Agreement pursuant to this Section 7.1(d) as a result of such breach.
SECTION 7.2 PROCEDURE FOR AND EFFECT OF TERMINATION. In the event of
the termination and abandonment of this Agreement by Seller or Purchaser
pursuant to Section 7.1 hereof, written notice thereof shall forthwith be given
to the other party. If the transactions contemplated
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by this Agreement are terminated as provided herein:
(a) each party will return all documents, work papers and other
material of any other party relating to the transactions contemplated hereby,
whether so obtained before or after the execution hereof, to the party
furnishing the same;
(b) all confidential information received by any party hereto with
respect to the business of any other party or its subsidiaries or affiliates
shall be treated in accordance with the provisions of the Confidentiality
Agreement, which shall survive the termination of this Agreement; and
(c) neither party to this Agreement will have any liability under
this Agreement to the other except: (i) as stated in subparagraphs (a) and (b)
of this Section 7.2, (ii) as stated in Section 4.10 above, (iii) for any willful
breach of any provision of this Agreement, and (iv) as provided in the
Confidentiality Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 GOVERNING LAWS AND CONSENT TO JURISDICTION. The laws of
the State of Illinois (irrespective of its choice of law principles) shall
govern all issues concerning the validity of this Agreement, the construction of
its terms, and the interpretation and enforcement of the rights and duties of
the parties. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of the courts of the State of Illinois and the Federal courts of
the United States of America located in the State of Illinois (and the Illinois
State and Federal courts having jurisdiction over appeals therefrom) in respect
of the transactions contemplated by this Agreement, the other agreements and
documents referred to herein and the transactions contemplated by this Agreement
and such other documents and agreements.
SECTION 8.2 AMENDMENT AND MODIFICATION. Subject to applicable law,
this Agreement may be amended, modified and supplemented in any and all respects
by written agreement of the parties hereto at any time prior to the Closing Date
with respect to any of the terms contained herein.
SECTION 8.3 NOTICES. All notices, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered: (a) by hand or by Federal Express or a similar overnight courier, (b)
by United States certified mail as evidenced by a signed return receipt, or (c)
by facsimile transmission as evidenced by a machine-generated printout
indicating successful transmission of the entire document (with a confirming
copy of such communication to be sent as provided in clauses (a) or (b) above),
to the party for whom intended at the address or fax number set forth below (or
at such other address or fax number for a party as shall be specified by like
notice, PROVIDED, HOWEVER, that any notice of change of address or fax number
shall be effective only upon receipt):
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(a) if to Purchaser, to:
Ceres Group, Inc./Central Reserve Life Insurance Company
17800 Royalton Road
Strongsville, Ohio 44136
Telephone No.: (440)572-2400
Fax No.: (440)572-4500
Attention: Billy Hill, Esq.
with a copy to:
Polsinelli, White, Vardeman & Shalton
700 West 47th Street, Suite 1000
Kansas City, Missouri 64112
Telephone No.: (816)753-1000
Fax No.: (816)753-1536
Attention: Frank J. Ross, Jr., Esq.
(b) if Seller, to:
United Insurance Company of America
c/o Unitrin, Inc.
One East Wacker Drive
Chicago, Illinois 60601
Telephone: (312)661-4600
Fax: (312) 661-4941
Attention: General Counsel
SECTION 8.4 INTERPRETATION.
(a) The words "hereof," "herein" and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. The words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa. The phrase "to the knowledge of" or any similar phrase shall mean such
facts and other information which as of the date of determination are actually
known to any vice president or chief financial officer and any officer superior
to any of the foregoing, of the referenced party. The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested
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by the party to whom such information is to be made available. The phrases "the
date of this Agreement," "the date hereof" and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to October 7, 1999. As
used in this Agreement, the term "business day" means a day, other than a
Saturday or a Sunday, on which banking institutions in the City of Chicago are
required to be open. The parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provisions
of this Agreement.
(b) The Disclosure Schedule shall be construed with and as an
integral part of this Agreement to the same extent as if the same had been set
forth verbatim herein. Any matter disclosed pursuant to the Disclosure Schedule
shall be deemed to be disclosed for all purposes under this Agreement, but such
disclosure shall not be deemed to be an admission or representation as to the
materiality of the item so disclosed.
(c) Headings are for convenience of the parties only and shall be
given no substantive or interpretative effect whatsoever.
SECTION 8.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, all of which shall together be considered one and the same
agreement.
SECTION 8.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This
Agreement (including the documents and the instruments referred to herein), the
Confidentiality Agreement and the Disclosure Schedule (i) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and (ii)
except as expressly provided herein, are not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
SECTION 8.7 SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
SECTION 8.8 SERVICE OF PROCESS. Each party irrevocably consents to
the service of process outside the territorial jurisdiction of the courts
referred to in Section 8.1 hereof in any such action or proceeding by mailing
copies thereof by certified United States mail, postage prepaid, return receipt
requested, to its address as specified in or pursuant to Section 8.3 hereof.
However, the foregoing shall not limit the right of a party to effect service of
process on the other party by any other legally available method.
SECTION 8.9 ASSIGNMENT. Except as otherwise expressly provided in
this Section, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned
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by either party hereto (whether by operation of law or otherwise) without the
prior written consent of the other party. Purchaser may assign its right to
acquire the Shares to a wholly owned subsidiary of Purchaser, but Purchaser
shall remain liable for all of its obligations under this Agreement. Subject to
the preceding sentences, this Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective permitted
successors and assigns.
SECTION 8.10 EXPENSES. Except as otherwise provided herein, all
costs and expenses incurred in connection with the transactions contemplated
hereby, this Agreement and the consummation of the transactions contemplated
hereby shall be paid by the party incurring such costs and expenses, whether or
not the transactions contemplated hereby is consummated.
SECTION 8.11 WAIVERS. Except as otherwise provided in this
Agreement, any failure of either party to comply with any obligation, covenant,
agreement or condition herein may be waived by the other party only by a written
instrument signed by such other party, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
UNITED INSURANCE COMPANY OF AMERICA
By: /s/ Donald G. Southwell
------------------------------------
Name: Donald G. Southwell
-----------------------------------
Title: President
----------------------------------
CERES GROUP, INC.
By: /S/ Peter W. Nauert
------------------------------------
Name: Peter W. Nauert
-----------------------------------
Title: Chairman and Ceo
----------------------------------
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ANNEX A -- INDEX OF DEFINED TERMS (not part of Agreement)
Defined in
TERMS SECTION
Affiliate.......................................................2.10
Agreement...................................................Preamble
Benefit Plans...............................................2.9(a)
Business day................................................8.4(a)
Closing Date................................................1.3(a)
Closing.....................................................1.3(a-c)
Code........................................................2.9(c)
Confidentiality Agreement.......................................4.2
Disclosure Schedule.........................................2.1
Encumbrances....................................................1.1(b)
ERISA Affiliate.............................................2.9(a)
ERISA.......................................................2.9(a)
Governmental Entity.........................................2.5
HSR Act.....................................................2.5
Indemnifiable Loss..........................................5.1(f)
Indemnifying Party..........................................5.1(e)
Indemnitee..................................................5.1(e)
Losses......................................................5.1(a)
Material Agreement..........................................15
Permits.....................................................2.11(b)
Post-Closing Dividend...........................................6.2(i)
Pre-Closing Dividend............................................6.2(h)
Purchase Price..............................................1.2
Purchaser...................................................Preamble
Purchaser's Consent Schedule....................................3.3
Purchaser Plans.............................................4.4(b)
Reinsurance Transaction.........................................4.6
SAP.........................................................2.6(a)
SAP Financial Statements........................................2.6(a)
Pyramid Intellectual Property...............................2.14
Pyramid.....................................................
Recitals
Pyramid Material Adverse Effect.............................2.1
Shares......................................................
Recitals
Tax Return..................................................12(f)
Taxes.......................................................2.12(f)
