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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): DECEMBER 1, 1997
FRONTIER INSURANCE GROUP, INC.
(Exact name of registrant as specified in charter)
DELAWARE 0-15022 14-1681606
(State or other juris- (Commission (IRS Employer
diction of incorp- File Number) Identification No.)
oration)
195 LAKE LOUISE MARIE ROAD, ROCK HILL, NEW YORK 12775-8000
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (914) 796-2100
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Acquisition of Western Indemnity Insurance Company
On December 1, 1997, Frontier Insurance Group, Inc. ("Registrant"),
acquired all of the issued and outstanding capital stock of Western Indemnity
Insurance Company ("Western") and Professional Risk Management Services of
Texas, Inc. ("ProRisk") from the direct or indirect subsidiaries of The Galtney
Group, Inc. ("Galtney"), for $48,500,000, pursuant to a stock purchase agreement
dated October 3, 1997. In the event the stockholders' equity of Western and
ProRisk at December 1, 1997 determined in accordance with generally accepted
accounting principles (the "Closing GAAP Equity") exceeds $36,000,000, the
purchase price will be increased and Registrant will pay Galtney the amount by
which the Closing GAAP Equity exceeds $36,000,000. In the event the Closing GAAP
Equity is less than $36,000,000, the purchase price will be decreased and
Galtney will pay Registrant the amount by which the Closing GAAP Equity is less
than $36,000,000. Further, in the event gross premiums written or assumed by
Western and ProRisk on a combined basis, as determined in accordance with
statutory accounting principles, for the 39-month period ended December 31, 2000
are less than $75,000,000 in the aggregate, Galtney will pay Registrant an
amount, not to exceed $2,000,000, equal to 10% of the difference between
$75,000,000 and the aggregate amount of gross premiums written during the
39-month period.
Registrant and Galtney have agreed, among other things, subject to
certain exceptions and qualifications, that until December 1, 2000, (i) Galtney
will provide Registrant with the opportunity to quote on substantially all new
business produced by Galtney generally classified as medical professional
liability, both primary and excess, (ii) Galtney will provide Registrant with a
right of first refusal for a period of 48 hours for renewal of all business
Galtney placed with Western which was in effect on December 1, 1997, (iii)
Western will continue its existing fronting arrangement at the same fronting fee
for Columbia/HCA (Healthcare Indemnity) and (iv) Registrant will cause Western
to maintain an office in Houston, Texas.
Western specializes in professional liability insurance for health care
providers and related disciplines. Western's operations will remain
headquartered in Houston, Texas, under the direction of Richard F. Harris, its
Chief Executive Officer. ProRisk is a Texas managing general agency which
Registrant intends to merge into Western.
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Sale of Florida Medical Malpractice Book of Business
Also on December 1, 1997, a subsidiary of Registrant sold substantially
all of its Florida medical malpractice book of business, excluding coverage for
dentists, psychiatrists and chiropractors and insurance policies issued and
insured under national programs or social service programs, to a subsidiary of
FPIC Insurance Group, Inc. (Nasdaq: FPIC), a publicly traded insurance holding
company ("FPIC"), in consideration for the issuance to Registrant of 111,663
shares of FPIC's common stock. In the event the total direct written premiums
and assumed premiums received by the FPIC subsidiary as a result of renewals
from the acquired book of business for the twelve-month period ended November
30, 1998 (the "Post-Closing Renewals") exceed $8,000,000, the FPIC subsidiary
will pay Registrant's subsidiary 40% of the difference between the Post-Closing
Renewals and $8,000,000. In the event the Post-Closing Renewals are less than
$8,000,000, Registrant's subsidiary will pay the FPIC subsidiary 40% of the
difference between $8,000,000 and the Post-Closing Renewals. Registrant's
subsidiary has granted the FPIC subsidiary the right through December 1, 2000 to
elect to participate for a three-year term in any of Registrant's national
medical malpractice insurance programs by reinsuring either the Florida
component of such programs or a percentage of the overall programs equivalent to
the Florida component. Subject to certain qualifications, Registrant's
subsidiary has agreed not to act as an insurer or agent, or to permit any of its
affiliates to so act, with respect to medical professional liability insurance
in the State of Florida through November 30, 2000.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(c) Exhibits.
10.17 Stock Purchase Agreement dated October 3, 1997 among The
Galtney Group, Inc., Galtney Holdings, Inc., Healthcare
Insurance Services, Inc. and Registrant.
10.18 Asset Purchase Agreement dated December 1, 1997 by and
between Medical Professional Liability Agency, Ltd. and
FPIC Insurance Agency, Inc. and. for purposes of Sections
5.1, 5.2, 5.3 and 5.4 only, Frontier Insurance Company.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FRONTIER INSURANCE GROUP, INC.
(Registrant)
By: /s/ Mark E. Mishler
__________________________________________
Mark E. Mishler
Vice President and Chief Financial Officer
Dated: December 5, 1997
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EXHIBIT INDEX
Exhibit Page
- ------- ----
10.17 Stock Purchase Agreement dated October 3,
1997 among The Galtney Group, Inc., Galtney
Holdings, Inc., Healthcare Insurance Services,
Inc. and Registrant.
10.18 Asset Purchase Agreement dated December 1,
1997 by and between Medical Professional
Liability Agency, Ltd. and FPIC Insurance
Agency, Inc. and. for purposes of Sections 5.1,
5.2, 5.3 and 5.4 only, Frontier Insurance
Company.
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================================================================================
STOCK PURCHASE AGREEMENT
among
THE GALTNEY GROUP, INC.,
GALTNEY HOLDINGS, INC.,
HEALTHCARE INSURANCE SERVICES, INC.
and
FRONTIER INSURANCE GROUP, INC.
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Dated as of October 3, 1997
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SALE OF WESTERN INDEMNITY INSURANCE COMPANY AND
PROFESSIONAL RISK MANAGEMENT SERVICES OF TEXAS, INC.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION Page
<S> <C> <C>
1. Purchase and Sale of the Shares......................................................1
2. Closing..............................................................................1
3. Purchase Price Adjustments...........................................................2
4. Conditions to Closing................................................................5
5. Representations and Warranties of Seller.............................................8
6. Covenants of Seller.................................................................20
7. Representations and Warranties of Buyer.............................................24
8. Covenants of Buyer..................................................................26
9. Mutual Covenants....................................................................27
10. Employee Benefit Matters............................................................29
11. Further Assurances..................................................................31
12. Indemnification.....................................................................31
13. Tax Matters.........................................................................38
14. Assignment..........................................................................41
15. No Third-Party Beneficiaries........................................................41
16. Termination.........................................................................41
17. Survival of Representations.........................................................42
18. Effect of Representations, Warranties, Covenants and Agreements of Seller...........42
19. Remedies Exclusive..................................................................43
20. Expenses............................................................................43
21. Attorney Fees.......................................................................43
22. Amendments..........................................................................43
23. Notices.............................................................................43
24. Interpretation; Exhibits and Schedules; Certain Definitions.........................44
25. Counterparts........................................................................45
26. Entire Agreement....................................................................45
27. Fees................................................................................45
28. Severability........................................................................45
29. Governing Law.......................................................................45
</TABLE>
Exhibit A Form of Opinion of Counsel to Seller
Exhibit B Form of Opinion of General Counsel to Seller
Exhibit C Form of Opinion of Counsel to Buyer
Exhibit D Form of Opinion of Regulatory Counsel to Buyer
Exhibit E Form of Non-Piracy Agreement
STOCK PURCHASE AGREEMENT
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Disclosure Schedule
5(b) Conflicts
5(c) The Shares
5(e) Capital Stock
5(f) Equity Interests
5(h) Taxes
5(i) Personal Property
5(j) Real Property
5(k) Intellectual Property
5(l) Contracts
5(m) Litigation
5(n) Insurance
5(o) Benefit Plans
5(p) Certain Changes or Events
5(r) Employee and Labor Matters
5(s) Licenses; Permits
5(v) Transactions with Affiliates
5(w) Corporate Name
6(b) Ordinary Conduct
8(c) Employment Agreements
STOCK PURCHASE AGREEMENT
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STOCK PURCHASE AGREEMENT dated as of October 3,
1997, among THE GALTNEY GROUP, INC., a Texas
corporation ("GGI"), GALTNEY HOLDINGS, INC., a
Delaware corporation and wholly owned subsidiary of
GGI ("GHI"), and HEALTHCARE INSURANCE SERVICES,
INC., a Texas corporation and wholly owned
subsidiary of GGI ("HIS" and, collectively with GGI
and GHI, "Seller") and FRONTIER INSURANCE GROUP,
INC., a Delaware corporation ("Buyer").
Buyer desires to purchase from Seller, and Seller desires to sell
to Buyer, all the issued and outstanding shares of (i) common stock, par value
$1.00 per share ("Western Shares"), of Western Indemnity Insurance Company, a
Texas corporation and wholly owned subsidiary of GHI ("Western") and (ii) common
stock, par value $0.01 per share (the "Pro Risk Shares", together with the
Western Shares, the "Shares") of Professional Risk Management Services of Texas,
Inc., a Texas corporation, and wholly owned subsidiary of HIS ("ProRisk",
together with Western, the "Companies" and any of Western or ProRisk
individually, a "Company").
Accordingly, Seller and Buyer hereby agree as follows:
1. Purchase and Sale of the Shares. On the terms and subject to
the conditions of this Agreement, Seller shall sell, transfer and deliver or
cause to be sold, transferred and delivered to Buyer, and Buyer shall purchase
from Seller, the Shares for an aggregate purchase price of $48.5 million (the
"Purchase Price"), subject to adjustment in accordance with Section 3.
2. Closing.
(a) The closing (the "Closing") of the purchase and sale of the
Shares shall be held at the offices of Vinson & Elkins L.L.P., 2300
First City Tower, 1001 Fannin, Houston, Texas 77002 at 10:00 a.m. on or
prior to December 1, 1997, or if the conditions to the Closing set forth
in Section 4 shall not have been satisfied by such date, as soon as
practicable after such conditions shall have been satisfied. The date on
which the Closing shall occur is hereinafter referred to as the "Closing
Date".
(b) At the Closing, Buyer shall deliver to Seller by wire
transfer to a bank account, designated in writing by Seller at least two
business days prior to the Closing Date, immediately available funds in
an amount equal to the Purchase Price.
(c) At the Closing, Seller shall deliver or cause to be delivered
to Buyer certificates representing the Shares, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank in proper form for
transfer, with appropriate transfer stamps, if any, affixed, free and
clear of all of the liens described in Schedule 5(c).
STOCK PURCHASE AGREEMENT
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3. Purchase Price Adjustments.
(a) Galtney Distribution.
(i) Prior to Closing, the Companies shall declare and pay
a liquidating distribution to Seller (the "Galtney Distribution")
equal to the amount (the "Estimated GAAP Surplus Amount") by
which the Companies' GAAP Equity (as defined below) as of the
Closing Date exceeds $36 million. The term "Companies' GAAP
Equity" shall mean the total stockholders equity of the Companies
as determined in accordance with generally accepted accounting
principles ("GAAP"), consistent with past practices. Following
the Galtney Distribution, the investments of the Companies will
consist solely of fixed income investments. Seller shall provide
Buyer with an estimated unaudited combined balance sheet as of
the Closing Date for Western and ProRisk (without giving effect
to the Galtney Distribution) and a written statement, certified
by the President and Chief Financial Officer of each of GGI and
Western, setting forth the Estimated GAAP Surplus Amount and
stating that such Estimated GAAP Surplus Amount has been
determined in accordance with the provisions of this Section 3(a)
and setting forth the components of the Galtney Distribution and
stating that the Galtney Distribution is equal to the Estimated
GAAP Surplus Amount. There shall be no goodwill reflected on such
estimated unaudited combined balance sheet.
(ii) Buyer shall, within 90 days after the Closing Date,
obtain from Ernst & Young LLP (or such other nationally
recognized firm of independent public accountants as shall at the
time be retained to audit the books and accounts of Buyer and
shall be reasonably acceptable to Seller) and provide to Seller
an audited combined balance sheet (the "Closing Date Balance
Sheet") as of the Closing Date for Western and ProRisk (giving
effect to the Galtney Distribution) and a written statement (the
"GAAP Equity Statement") of such firm setting forth the
Companies' GAAP Equity as of the Closing Date as set forth on the
Closing Date Balance Sheet (the "Companies' Closing GAAP Equity")
and stating that the Companies' Closing GAAP Equity has been
determined in accordance with the provisions of this Section
3(a). The Closing Date Balance Sheet shall be based on accounting
principles and practices consistent with the Audited December 31,
1996 GAAP Financial Statements (as defined herein).
(iii) If the Companies' Closing GAAP Equity exceeds $36
million, the Purchase Price shall be increased by, and Buyer
shall pay Seller 125 days after the Closing Date (or, if a Notice
of Disagreement is delivered pursuant to Section 3(c), within two
business days after the GAAP Equity Statement and the Closing
Date Balance Sheet shall become final and binding on the
parties), an amount equal to the amount by which the Companies'
Closing GAAP Equity exceeds $36 million, by wire transfer to a
bank account designated in writing by Seller, in immediately
available funds. If the Companies' Closing GAAP Equity is less
than $36 million, the Purchase Price shall be decreased by, and
Seller shall pay Buyer 125 days after
STOCK PURCHASE AGREEMENT
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the Closing Date (or, if a Notice of Disagreement is delivered
pursuant to Section 3(c), within two business days after the GAAP
Equity Statement and the Closing Date Balance Sheet shall become
final and binding upon the parties), an amount equal to the
difference between $36 million and the Companies' Closing GAAP
Equity, by wire transfer to a bank account designated in writing
by Buyer, in immediately available funds.
(b) Gross Premiums Written.
(i) If Gross Premiums Written (as defined herein) for the
12-month periods ended December 31, 1998, 1999 and 2000
(collectively, the "Reimbursement Period") are less than $75
million in the aggregate, Seller shall pay Buyer 125 days after
December 31, 2000 (or, if a Notice of Disagreement is delivered
pursuant to Section 3(c), within two business days after the
Reimbursement Statement (as defined herein) shall become final
and binding upon the parties), an amount (the "Reimbursement")
equal to 10% of the difference between $75 million and the
aggregate amount of Gross Premiums Written for the Reimbursement
Period. If the Closing occurs on or prior to the date that is 70
days after the date of this Agreement, the Gross Premiums Written
for 1998 shall be calculated on the basis of the 15-month period
ended December 31, 1998. Seller shall deliver the Reimbursement
(if any) payable pursuant to this paragraph to Buyer, by wire
transfer to a bank account designated in writing by Buyer, in
immediately available funds. The amount of the Reimbursement
payable pursuant to this paragraph shall not exceed $2.0 million.
(ii) If there shall be a material change in the lines of
business as described in the Confidential Memorandum prepared by
Donaldson, Lufkin & Jenrette Securities Corporation dated March
1997 (the "DLJ Confidential Memorandum") written by Buyer at any
time during the Reimbursement Period, Seller shall not be
obligated to make any Reimbursement.
(iii) For purposes of this Section 3, the term "Gross
Premiums Written" shall mean, in respect of any period, gross
premiums written or assumed by the Companies on a combined basis
for such period, as determined in accordance with statutory
accounting principles ("SAP"). Gross Premiums Written shall
include (i) any premiums sourced from any subsidiary of GGI and
(ii) any premiums written or assumed by any subsidiary of Buyer
that were generated by any subsidiary of GGI pursuant to Section
9(g) of this Agreement.
(iv) Buyer shall, within 90 days after December 31 in each
of the 12-month periods ended December 31, 1998, 1999 and 2000,
obtain from Ernst & Young LLP (or such other nationally
recognized firm of independent public accountants as shall at the
time be retained to audit the books and accounts of Buyer and
shall be reasonably acceptable to Seller) and provide to Seller a
written statement (a "Reimbursement Statement") of such firm
setting forth the Gross Premiums
STOCK PURCHASE AGREEMENT
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Written for such period and stating that the amount of such Gross
Premiums Written has been determined in accordance with the
provisions of this Section 3(b). The Reimbursement Statement in
respect of the 12-month period ended December 31, 2000 shall also
set forth the computation of the Reimbursement (if any) and shall
state that the amount of such Reimbursement (if any) has been
determined in accordance with the provisions of this Section
3(b).
(c) During the 30-day period following Seller's receipt of a
Reimbursement Statement or a GAAP Equity Statement (a "Statement") or
the Closing Date Balance Sheet, Seller and its independent auditors
shall be permitted to review the working papers of Buyer's independent
auditors relating to such Statement or Closing Date Balance Sheet and
may conduct, through independent auditors, its own independent audit if
deemed necessary. A Statement or the Closing Date Balance Sheet shall
become final and binding upon the parties on the thirtieth day following
receipt thereof by Seller unless Seller gives written notice of its
disagreement with such Statement or Closing Date Balance Sheet ("Notice
of Disagreement") to Buyer prior to such date. Any Notice of
Disagreement shall specify in reasonable detail the nature of any
disagreement so asserted and shall be accompanied by an adjusted balance
sheet or calculation of gross premiums written, as appropriate, prepared
by Seller and a Statement on Auditing Standards Number 50 ("SAS 50")
opinion of Seller's independent auditors with respect to the balance
sheet or other calculations prepared by Seller. If a Notice of
Disagreement is received by Buyer in a timely manner, then such
Statement or Closing Date Balance Sheet (as revised in accordance with
clause (A) or (B) below) shall become final and binding upon the parties
on the earlier of (A) the date the parties hereto resolve in writing any
differences they have with respect to any matter specified in the Notice
of Disagreement or (B) the date any disputed matters are finally
resolved in writing by the Accounting Firm (as defined below). During
the 30-day period following the delivery of a Notice of Disagreement,
Seller and Buyer shall seek in good faith to resolve in writing any
differences which they may have with respect to any matter specified in
the Notice of Disagreement. At the end of such 30-day period, Seller and
Buyer shall submit to the Accounting Firm for review and resolution any
and all matters arising under this Section 3 which remain in dispute.
The Accounting Firm shall be Coopers & Lybrand, or if such firm is
unwilling or unable to act, such other nationally recognized firm of
independent public accountants as shall be agreed upon by the parties
hereto in writing. Seller and Buyer shall use their reasonable efforts
to cause the Accounting Firm to render a decision resolving the matters
submitted to the Accounting Firm within 30 days following submission.
Seller and Buyer agree that judgment may be entered in any court having
jurisdiction over the party against which such determination is to be
enforced. The cost of any arbitration (including the fees of the
Accounting Firm) pursuant to this Section 3 shall be borne 50% by Buyer
and 50% by Seller. The fees and disbursements of Buyer's independent
auditors incurred in connection with their certification of any
Statement or preparation of the Closing Date Balance Sheet shall be
borne by Buyer, and the fees and disbursements of Seller's independent
auditors incurred in connection with their review of such Statement or
Closing Date Balance Sheet or preparation of an SAS 50 opinion shall be
borne by Seller.
STOCK PURCHASE AGREEMENT
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4. Conditions to Closing.
(a) Buyer's Obligation. The obligation of Buyer to purchase
and pay for the Shares is subject to the satisfaction (or waiver by
Buyer) as of the Closing of the following conditions:
(i) The representations and warranties of Seller made in
this Agreement shall be true and correct in all material
respects, as of the date hereof and as of the time of the Closing
as though made as of such time, except to the extent such
representations and warranties expressly relate to an earlier
date (in which case such representations and warranties shall be
true and correct in all material respects, on and as of such
earlier date), in each case except for breaches as to matters
that, individually or in the aggregate, are not reasonably likely
to have a Material Adverse Effect (as defined below). Seller
shall have performed or complied in all material respects with
all obligations and covenants required by this Agreement to be
performed or complied with by Seller by the time of the Closing.
Seller shall have delivered to Buyer certificates dated the
Closing Date and signed by the President and the Chief Financial
Officer of GGI and the President of each of GHI and HIS
confirming the foregoing.
(ii) Buyer shall have received an opinion dated the
Closing Date of Vinson & Elkins L.L.P., counsel to Seller,
substantially in the form of Exhibit A, and an opinion dated the
Closing Date of Rex Martin, General Counsel of Seller,
substantially in the form of Exhibit B. The opinion of Vinson &
Elkins L.L.P. shall state that such firm has reviewed the opinion
of Rex Martin and that such firm believes Buyer is justified in
relying thereon.
(iii) No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced
or issued by any Federal, state, local or foreign government or
any court of competent jurisdiction, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign (a "Governmental Entity"), or other legal
restraint or prohibition preventing the purchase and sale of the
Shares shall be in effect.
(iv) There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any
other person any suit, action or proceeding which has a
reasonable likelihood of success), (A) challenging or seeking to
restrain or prohibit the purchase and sale of the Shares or any
of the other transactions contemplated by this Agreement or
seeking to obtain from Buyer or any of its subsidiaries in
connection with the purchase and sale of the Shares any damages
that are material in relation to Buyer and its subsidiaries taken
as a whole, (B) seeking to prohibit or limit the ownership or
operation by Buyer, any Company or any of their respective
subsidiaries of any material portion of the business or assets of
Buyer, any Company or any of their respective subsidiaries, or to
compel Buyer, any Company
STOCK PURCHASE AGREEMENT
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or any of their respective subsidiaries to dispose of or hold
separate any material portion of the business or assets of Buyer,
any Company or any of their respective subsidiaries, in each case
as a result of the purchase and sale of the Shares or any of the
other transactions contemplated by this Agreement, (C) seeking to
impose limitations on the ability of Buyer to acquire or hold, or
exercise full rights of ownership of, the Shares or (D) seeking
to prohibit Buyer or any of its subsidiaries from effectively
controlling in any material respect the business or operations of
any Company or any of their respective subsidiaries.
(v) The waiting period under the Hart-Scott Rodino
Antitrust Improvements Act of 1976 (the "HSR Act"), if applicable
to the purchase and sale of the Shares, shall have expired or
been terminated.
(vi) Western shall have repaid the Surplus Debenture (as
defined herein).
(vii) Except for any advances or operating expenses
incurred in the ordinary course of business, all indebtedness
between the Companies, on the one hand, and Seller and its
affiliates, on the other hand, shall have been repaid.
(viii) Neither Western nor ProRisk shall have any
subsidiaries other than Gulf Assurance, B.V.I., an insurance
company located in the British Virgin Islands.
(ix) The Shares shall be free and clear of all liens,
including the liens described in Schedule 5(c).
(x) Western shall have maintained a rating by A.M. Best &
Co. of "A-" or better from the date of this Agreement through and
including the Closing Date.
(xi) Western shall have been released from all letters of
credit described in the stock purchase agreement between Western
and CMA Holdings (listed under item (viii) of Schedule 5(l)).
(xii) Buyer shall have received the following documents
from Seller:
(A) certificates of good standing (or comparable
documents) for each of Western and ProRisk from their
respective States of incorporation, and certificates of
good standing (or comparable documents) as foreign
corporations in each jurisdiction where the Companies are
so qualified, in each case issued as of a date not more
than fourteen days prior to the Closing Date;
(B) a Secretary's certificate of each of GGI, GHI
and HIS certifying as to the incumbency of their
respective authorized officers, genuineness of their
respective signatures and validity and effectiveness of
STOCK PURCHASE AGREEMENT
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attached copies of their certificates of incorporation,
by-laws and authorizing corporate resolutions;
(C) the records specified in Section 9(e); and
(D) termination of any tax sharing agreement
between the Companies and GGI.
(b) Seller's Obligation. The obligation of Seller to sell and
deliver the Shares to Buyer is subject to the satisfaction (or waiver by
Seller) as of the Closing of the following conditions:
(i) The representations and warranties of Buyer made in
this Agreement shall be true and correct in all material
respects, as of the date hereof and as of the time of the Closing
as though made as of such time, except to the extent such
representations and warranties expressly relate to an earlier
date (in which case such representations and warranties shall be
true and correct in all material respects, on and as of such
earlier date). Buyer shall have performed or complied in all
material respects with all obligations and covenants required by
this Agreement to be performed or complied with by Buyer by the
time of the Closing. Buyer shall have delivered to Seller a
certificate dated the Closing Date and signed by an authorized
officer of Buyer confirming the foregoing.
(ii) Seller shall have received an opinion dated the
Closing Date of Epstein, Becker & Green, P.C., counsel to Buyer,
substantially in the form of Exhibit C, and an opinion dated the
Closing Date of Marvin Tepper, Esq., regulatory counsel to Buyer,
substantially in the form of Exhibit D.
(iii) No statute, rule, regulation, executive order,
decree, temporary restraining order, preliminary or permanent
injunction or other order enacted, entered, promulgated, enforced
or issued by any Governmental Entity or other legal restraint or
prohibition preventing the purchase and sale of the Shares shall
be in effect.
(iv) There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any
other person any suit, action or proceeding which has a
reasonable likelihood of success), challenging or seeking to
restrain or prohibit the purchase and sale of the Shares or any
of the other transactions contemplated by this Agreement or
seeking to obtain from Seller or any of its subsidiaries in
connection with the purchase and sale of the Shares any damages
that are material in relation to Seller and its subsidiaries
taken as a whole.
(v) The waiting period under the HSR Act, if applicable to
the purchase and sale of the Shares, shall have expired or been
terminated.
STOCK PURCHASE AGREEMENT
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(vi) Frontier Insurance Company shall have maintained a
rating by A.M. Best & Co. of "A-" or better from the date of this
Agreement through and including the Closing Date.
(c) Frustration of Closing Conditions. Neither Buyer nor Seller
may rely on the failure of any condition set forth in Section 4(a) or
4(b), respectively, to be satisfied if such failure was caused by such
party's failure to act in good faith or use its reasonable best efforts
to cause the Closing to occur, as required by Section 9(c).
5. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as follows:
(a) Authority. Each of GGI and HIS is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Texas. GHI is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware. Seller has
all requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. All corporate acts and other
proceedings required to be taken by Seller to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by Seller and constitutes
a legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms.
(b) No Conflicts: Consents. The execution and delivery of this
Agreement by Seller do not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof will not,
conflict with, or result in any violation of or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss
of a benefit under, or result in the creation of any lien, claim,
encumbrance, security interest, option, charge or restriction of any
kind upon any of the properties or assets of any Company or any
Subsidiary under, any provision of (i) the Certificate of Incorporation
or Bylaws of Seller or any Company or the comparable governing
instruments of any Subsidiary, (ii) except as set forth in Schedule
5(b), any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment, agreement or arrangement to which Seller,
any Company or any Subsidiary is a party or by which any of their
respective properties or assets are bound or (iii) any judgment, order
or decree, or statute, law, ordinance, rule or regulation applicable to
Seller, any Company or any Subsidiary or their respective properties or
assets, other than, in the case of clauses (ii) and (iii) above, any
such items that, individually or in the aggregate, would not have a
material adverse effect on the business, assets, financial condition or
results of operations of Western and ProRisk, taken as a whole (a
"Material Adverse Effect"). No consent, approval, license, permit, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required to be obtained or made by or with
respect to Seller, any Company or any Subsidiary in connection with the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby other than (I)
compliance with and filings under the HSR Act, if applicable, (II)
compliance with and filings under any
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applicable state insurance or insurance holding company laws and (III)
those which if not obtained would have no Material Adverse Effect.
(c) The Shares. Except as set forth on Schedule 5(c), GHI has
good and valid title to the Western Shares, and HIS has good and valid
title to the ProRisk Shares, free and clear of any liens, claims,
encumbrances, security interests, options, charges and restrictions of
any kind. Assuming Buyer has the requisite power and authority to be the
lawful owner of the Shares, upon delivery to Buyer at the Closing of
certificates representing the Shares, duly endorsed by Seller for
transfer to Buyer, and upon Seller's receipt of the Purchase Price, good
and valid title to the Shares will pass to Buyer, free and clear of any
liens, claims, encumbrances, security interests, options, charges and
restrictions of any kind, other than those arising from acts of Buyer or
its affiliates. Other than this Agreement, the Shares are not subject to
any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the
voting, dividend rights or disposition of the Shares. No stock transfer
taxes are due as a result of the purchase and sale of the Shares.
(d) Organization and Standing. Each of the Companies and the
Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation. Each
of the Companies and the Subsidiaries has full corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or
otherwise hold its properties and assets and to carry on its business as
presently conducted, other than such franchises, licenses, permits,
authorizations and approvals the lack of which, individually or in the
aggregate, would not have a Material Adverse Effect. Each of the
Companies and the Subsidiaries is duly qualified and in good standing to
do business as a foreign corporation in each jurisdiction in which the
conduct or nature of its business or the ownership, leasing or holding
of its properties makes such qualification necessary, except such
jurisdictions where the failure to be so qualified or in good standing,
individually or in the aggregate, would not have a Material Adverse
Effect. The term "Subsidiary" means each person of which a majority of
the voting power of the voting equity securities or equity interest is
owned, directly or indirectly, by any Company. The term "Western
Subsidiary" means each person of which a majority of the voting power of
the voting equity securities or equity interest is owned, directly or
indirectly, by Western, and the term "ProRisk Subsidiary" means each
person of which a majority of the voting power or the voting equity
securities or equity interest is owned, directly or indirectly, by
ProRisk.
(e) Capital Stock of the Companies and the Subsidiaries. The
authorized capital stock of Western consists of 5,000,000 shares of
Common Stock, par value $1.00 per share, of which 3,600,000,
constituting the Western Shares, are duly authorized and validly issued
and outstanding, fully paid and nonassessable. The authorized capital
stock of ProRisk consists of 1,000 shares of Common Stock, par value
$0.01 per share, of which 100, constituting the ProRisk Shares, are duly
authorized and validly issued and outstanding, fully paid and
nonassessable. Except for the Shares, there are no shares of capital
stock or other
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equity securities of either Company outstanding. Schedule 5(e) sets
forth for each Subsidiary the amount of its authorized capital stock,
the amount of its outstanding capital stock and the record and
beneficial owners of its outstanding capital stock. All the outstanding
shares of capital stock of each Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable. Except as set forth
in Schedule 5(e), there are no shares of capital stock or other equity
securities of any Subsidiary outstanding. Neither the Shares nor any
shares of capital stock of any Subsidiary have been issued in violation
of, and none of the Shares or such shares of capital stock are subject
to, any purchase option, call, right of first refusal, preemptive,
subscription or similar rights under any provision of applicable law,
the Certificate of Incorporation or By-laws of any Company or the
comparable governing instruments of any Subsidiary, any contract,
agreement or instrument to which any Company or Subsidiary is subject,
bound or a party or otherwise. There are no outstanding warrants,
options, rights, "phantom" stock rights, agreements, convertible or
exchangeable securities or other commitments (other than this Agreement)
pursuant to which Seller or any Company or Subsidiary is or may become
obligated to issue, sell, purchase, return or redeem any shares of
capital stock or other securities of any Company or Subsidiary. Except
as set forth in Schedule 5(e), there are no equity securities of any
Company or Subsidiary reserved for issuance for any purpose. Except as
set forth in Schedule 5(e), Western has good and valid title, directly
or through one or more wholly owned Subsidiaries, to all the outstanding
shares of capital stock of each Western Subsidiary and ProRisk has good
and valid title, directly or through one or more wholly owned
Subsidiaries), to all the outstanding shares of capital stock of each
ProRisk Subsidiary, free and clear of any liens, claims, encumbrances,
security interests, options, charges and restrictions of any kind.
Except as set forth in Schedule 5(e), there are no outstanding bonds,
debentures, notes or other indebtedness having the right to vote on any
matters on which stockholders of any Company or Subsidiary may vote.
(f) Equity Interests. Except for the Subsidiaries and as set
forth in Schedule 5(f), the Companies do not directly or indirectly own
any capital stock of or other equity interests in any corporation,
partnership or other person and none of the Companies or the
Subsidiaries is a member of or participant in any partnership, joint
venture or similar person.
(g) Financial Statements.
(i) GAAP Financial Statements. The unaudited balance sheet
as of June 30, 1997 and the unaudited statement of income and
cash flows for the six months ended June 30, 1997 for each of
Western and ProRisk (collectively the "Unaudited June 30, 1997
GAAP Financial Statements"), which previously have been furnished
to Buyer, have been prepared in accordance with GAAP consistently
applied and on that basis present fairly, in all material
respects, the financial positions of each of Western and ProRisk
and their respective Subsidiaries as of the date thereof and the
results of operations of each of Western and ProRisk and their
respective Subsidiaries for the period then ended; the audited
combined balance sheets as of December 31, 1996 and September 30,
1997 and the audited combined statements of income and cash flows
for the year ended December 31, 1996 and for the nine months
ended September 30, 1997, for Western and ProRisk, including the
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notes thereto (the "Audited December 31, 1996 GAAP Financial
Statements" and the "Audited September 30, 1997 GAAP Financial
Statements," respectively), to be furnished to Buyer pursuant to
Section 6(c) hereof, shall be audited by KPMG Peat Marwick LLP in
accordance with GAAP consistently applied (except in each case as
described in the notes thereto) and on that basis shall present
fairly, in all material respects, the financial position of
Western and ProRisk and their respective Subsidiaries as of the
dates thereof and the results of operations of Western and
ProRisk and their respective Subsidiaries for the periods then
ended.
(ii) Statutory Financial Statements. The audited statutory
balance sheets of Western as of December 31, 1994, December 31,
1995 and December 31, 1996 and the related audited statutory
statements of income and changes in capital and surplus and cash
flows for each of the years then ended, including the notes
thereto (collectively, the "Audited 1994, 1995 and 1996 SAP
Financial Statements"), which previously have been furnished to
Buyer, present fairly, in all material respects, the admitted
assets, liabilities, capital and surplus, cash flows and other
funds of Western as at the dates and for the periods indicated,
in conformity with SAP; and the audited statutory balance sheet
of Western as of September 30, 1997 and the related audited
statutory statement of income and changes in capital and surplus
and cash flows for the nine months then ended, including the
notes thereto (the "Audited September 30, 1997 SAP Financial
Statements"), to be furnished to Buyer pursuant to Section 6(c)
hereof, shall present fairly, in all material respects, the
admitted assets, liabilities, capital and surplus, cash flows and
other funds of Western as at the date and for the period
indicated, in conformity with SAP.
(iii) No representation or warranty is made in this
Agreement with respect to any reserve for losses and loss
adjustment expenses or related reinsurance recoverables or
credits, and Seller shall not be liable for any such losses and
loss adjustment expenses or related reinsurance recoverables or
credits that exceed the reserves provided for on the books of the
Companies.
(h) Taxes.
(i) For purposes of this Agreement, (A) "Tax" or "Taxes"
shall mean all Federal, state, local and foreign taxes and
assessments, including all interest, penalties and additions
imposed with respect to such amounts; (B) "pre-Closing Tax
Period" shall mean all taxable periods ending on or before the
Closing Date and the portion ending on the Closing Date of any
taxable period that includes (but does not end on) such day; and
(C) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(ii) Except as set forth in Schedule 5(h), (A) each of the
Companies and the Subsidiaries, and any affiliated group, within
the meaning of Section 1504 of the Code, of which any of the
Companies or the Subsidiaries is or has been a member, has filed
or caused to be filed in a timely manner (within any applicable
extension
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periods) all material Tax returns, reports and forms required to
be filed by the Code or by applicable state, local or foreign tax
laws, (B) all Taxes shown to be due on such returns, reports and
forms have been timely paid in full or will be timely paid in
full by the due date thereof, and (C) no material tax liens have
been filed and no material claims are being asserted in writing
with respect to any Taxes.
(iii) The Federal consolidated income tax returns in which
the Companies and/or any of the Subsidiaries have joined have not
been examined by the Internal Revenue Service.
(i) Assets Other than Real Property Interests. Western and its
Subsidiaries and ProRisk, respectively, have good and valid title to all
material assets reflected on their respective unaudited GAAP balance
sheets as at June 30, 1997 (the "Unaudited June 30, 1997 Balance
Sheets") previously furnished to Buyer or thereafter acquired, except
those sold or otherwise disposed of since June 30, 1997 in the ordinary
course of business consistent with past practice and not in violation of
this Agreement, in each case free and clear of all mortgages, liens,
security interests or encumbrances of any kind except (i) such as are
set forth in Schedule 5(i), (ii) mechanics', carriers', workmen's,
repairmen's or other like liens arising or incurred in the ordinary
course of business, liens arising under original purchase price
conditional sales contracts and equipment leases with third parties
entered into in the ordinary course of business and liens for Taxes
which are not due and payable or which may thereafter be paid without
penalty, in each case, less than $10,000, (iii) mortgages, liens,
security interests and encumbrances which secure debt that is reflected
as a liability on the Unaudited June 30, 1997 Balance Sheets and the
existence of which is indicated in the notes thereto and (iv) other
imperfections of title or encumbrances, if any, which do not,
individually or in the aggregate, materially impair the continued use
and operation of the assets to which they relate in the business of the
Companies and the Subsidiaries, taken as a whole, as presently conducted
(the mortgages, liens, security interests and encumbrances described in
clauses (ii), (iii) and (iv) above are hereinafter referred to
collectively as "Permitted Liens"). Western and its Subsidiaries, and
ProRisk and its Subsidiaries, respectively, have good and valid title to
all assets having a value in excess of $10,000 reflected on the
Unaudited June 30, 1997 Balance Sheets or thereafter acquired except
those sold or otherwise disposed of after June 30, 1997 in the ordinary
course of business consistent with past practice and not in violation of
this Agreement, in each case free of all mortgages, liens, security
interests or encumbrances of any kind whatsoever except for Permitted
Liens.
This Section 5(i) does not relate to real property or interests
in real property, such items being the subject of Section 5(j).
(j) Title to Real Property. Schedule 5(j) sets forth a complete
list of all real property and interests in real property owned in fee by
the Companies and the Subsidiaries (individually, an "Owned Property").
Schedule 5(j) sets forth a complete list of all real property and
interests in real property leased by the Companies and the Subsidiaries
(individually, a "Leased Property"). The Companies and the Subsidiaries
have (i) good and
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insurable fee title to all Owned Property and (ii) good and valid title
to the leasehold estates in all Leased Property (an Owned Property or
Leased Property being sometimes referred to herein, individually, as
"Property" and, collectively, as "Properties"), in each case free and
clear of all mortgages, liens, security interests, encumbrances, leases,
assignments, subleases, easements, covenants, rights-of-way and other
similar restrictions of any nature whatsoever, except where such failure
to have good title has not had, and could not reasonably be expected to
have, a Material Adverse Effect.
(k) Intellectual Property. Schedule 5(k) sets forth a true and
complete list of all material patents, trademarks (registered or
unregistered), trade names, service marks and copyrights and
applications therefor and other material intellectual property and
proprietary rights, whether or not subject to statutory registration or
protection (collectively, "Intellectual Property"), owned, used, filed
by or licensed to any of the Companies or the Subsidiaries. With respect
to registered trademarks, Schedule 5(k) sets forth a list of all
jurisdictions in which such trademarks are registered or applied for and
all registration and application numbers. Except as set forth in
Schedule 5(k), one of the Companies or the Subsidiaries owns, and the
Companies and the Subsidiaries have the right to use, execute,
reproduce, display, perform, modify, enhance, distribute, prepare
derivative works of and sublicense, without payment to any other person,
all Intellectual Property listed in Schedule 5(k) and the consummation
of the transactions contemplated hereby will not conflict with, alter or
impair any such rights. Each of the Companies and the Subsidiaries has
all rights to Intellectual Property as are necessary in connection with
the business of such Company and such Subsidiary as presently conducted.
(l) Contracts. Except as set forth in Schedule 5(l), neither any
Company nor any Subsidiary is a party to or bound by any:
(i) reinsurance agreement;
(ii) employee collective bargaining agreement or other
contract with any labor union;
(iii) covenant not to compete (other than pursuant to any
radius restriction contained in any lease, reciprocal easement or
development, construction, operating or similar agreement) that
materially impairs the operation of the business of the Companies
and the Subsidiaries as presently conducted;
(iv) agreement, contract or other arrangement with (A)
Seller or any affiliate of Seller (other than with any Company or
Subsidiary) or (B) any officer, director or employee of any
Company or Subsidiary or Seller or any affiliate of Seller;
(v) lease, sublease or similar agreement with any person
(other than with any Company or Subsidiary) under which any
Company or Subsidiary is a lessor or sublessor of, or makes
available for use to any person (other than with any Company
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or Subsidiary), (A) any Property or (B) any portion of any
premises otherwise occupied by any Company or Subsidiary;
(vi) management, service, consulting or other similar type
of contract, which has an aggregate future liability to any
person (other than with any Company or Subsidiary) in excess of
$10,000 and is not terminable by any Company or Subsidiary by
notice of not more than 60 days for a cost of less than $10,000;
(vii) material license, option or other agreement relating
in whole or in part to the Intellectual Property set forth in
Schedule 5(k) (including any license or other agreement under
which any Company or Subsidiary is licensee or licensor of any
such Intellectual Property) or to trade secrets, confidential
information or proprietary rights of any Company or Subsidiary or
any other person;
(viii) agreement, contract or other instrument under which
any Company or Subsidiary has borrowed any money from, or issued
any note, bond, debenture or other evidence of indebtedness to,
any person (other than any Company or Subsidiary) or any other
note, bond, debenture or other evidence of indebtedness issued to
any person (other than to or by any Company or Subsidiary);
(ix) agreement, contract or other instrument (other than
any agreement described in clause (i) of this Section 5(l)) under
which (A) any person (including any Company or Subsidiary) has
directly or indirectly guaranteed indebtedness, liabilities or
obligations of any Company or Subsidiary or (B) any Company or
Subsidiary has directly or indirectly guaranteed indebtedness,
liabilities or obligations of any person (in each case other than
endorsements for the purpose of collection in the ordinary course
of business);
(x) agreement, contract or other instrument (other than
any agreement described in clause (i) of this Section 5(l)) under
which any Company or Subsidiary has, directly or indirectly, made
any advance, loan, extension of credit or capital contribution
to, or other investment in, any person (other than any Company or
Subsidiary);
(xi) mortgage, pledge, security agreement, deed of trust
or other instrument granting a lien or other encumbrance upon any
Property, which lien or other encumbrance is set forth in
Schedule 5(i) or 5(j);
(xii) agreement or instrument providing for
indemnification of any person with respect to liabilities
relating to any current or former business of any Company or
Subsidiary or any predecessor person; or
(xiii) other agreement, contract, lease, license,
commitment or instrument to which any Company or Subsidiary is a
party or by or to which it or any of its assets or business is
bound or subject which has an aggregate future liability (other
than any
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lawsuit, claim or liability related to any policy for which
Western is the insurer or the reinsurer) to any person (other
than any Company or Subsidiary) in excess of $10,000 and is not
terminable by any Company or Subsidiary by notice of not more
than 60 days for a cost of less than $10,000.
Except as set forth in Schedule 5(l), all agreements, contracts, leases,
licenses, commitments or instruments of any Company or Subsidiary listed in the
Schedules hereto (collectively, the "Contracts") are valid, binding and in full
force and effect and are enforceable by the relevant Company or Subsidiary in
accordance with its terms. Except as set forth in Schedule 5(l), the Companies
and the Subsidiaries have performed all obligations required to be performed by
them to date under the Contracts and they are not (with or without the lapse of
time or the giving of notice, or both) in breach or default in any respect
thereunder and, to the knowledge of Seller, no other party to any of the
Contracts is (with or without the lapse of time or the giving of notice, or
both) in breach or default in any respect thereunder except for such breaches or
defaults that would not have a Material Adverse Effect.
(m) Litigation. Schedule 5(m) sets forth a list as of the date of
this Agreement of all pending lawsuits or claims, with respect to which
Seller, any Company or any Subsidiary has been contacted in writing by
counsel for the plaintiff or claimant, against any Company or any
Subsidiary or any of their respective properties, assets, operations or
businesses, other than any lawsuit, claim or liability related to any
policy for which Western is the insurer or the reinsurer. Except as set
forth in Schedule 5(m), none of the lawsuits or claims listed in
Schedule 5(m) as to which there is at least a reasonable possibility of
adverse determination would have, if so determined, individually or in
the aggregate, a Material Adverse Effect. To the knowledge of Seller,
except as set forth in Schedule 5(m), neither any Company nor any
Subsidiary is a party or subject to or in default under any judgment,
order, injunction or decree of any Governmental Entity or arbitration
tribunal applicable to it or any of its respective properties, assets,
operations or business. Except as set forth in Schedule 5(m), there is
no lawsuit or claim by any Company or Subsidiary pending, or which any
Company or Subsidiary intends to initiate, against any other person.
Except as set forth in Schedule 5(m), to the knowledge of Seller, there
is no pending or threatened investigation of any Company or Subsidiary
by any Governmental Entity.
(n) Insurance. Seller or the Companies and the Subsidiaries
maintain policies of fire and casualty, liability and other forms of
insurance in such amounts, with such deductibles and against such risks
and losses as are, in Seller's judgment, reasonable for the business and
assets of the Companies and the Subsidiaries. The insurance policies
maintained with respect to the Companies and the Subsidiaries and their
respective assets and properties are listed in Schedule 5(n). All such
policies are in full force and effect, all premiums due and payable
thereon have been paid (other than retroactive or retrospective premium
adjustments that are not yet, but may be, required to be paid with
respect to any period ending prior to the Closing Date), and no notice
of cancellation or termination has been received with respect to any
such policy which has not been replaced on substantially similar terms
prior to the date of such cancellation.
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(o) Benefit Plans.
(i) Schedule 5(o) contains a list of all "employee pension
benefit plans" (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"))
(sometimes referred to herein as "Pension Plans"), "employee
welfare benefit plans" (as defined in Section 3(1) of ERISA),
bonus, stock option, stock purchase, deferred compensation plans
or arrangements and other employee fringe benefit plans (all the
foregoing being herein called "Benefit Plans") maintained, or
contributed to, by Seller, any Company or any Subsidiary for the
benefit of any officers or employees of any Company or
Subsidiary. Seller has made available to Buyer true, complete and
correct copies of (A) each Benefit Plan (or, in the case of any
unwritten Benefit Plans, descriptions thereof), (B) the most
recent annual report on Form 5500 filed with the Internal Revenue
Service with respect to each Benefit Plan (if any such report was
required), (C) the most recent summary plan description for each
Benefit Plan for which such a summary plan description is
required and (D) each trust agreement and group annuity contract
relating to any Benefit Plan. No Benefit Plan is a "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA), and no Benefit
Plan is subject to Title IV of ERISA, Section 412 of the Code, or
Section 302 of ERISA. None of the Companies or Subsidiaries has
any outstanding liability (contingent or otherwise) with respect
to (1) a "defined benefit plan" (as defined in Section 3(35) of
ERISA) or a "multiemployer plan" (as defined in Section 3(37) of
ERISA) that has been sponsored, maintained or contributed to by
the Seller, the Companies, the Subsidiaries or any Commonly
Controlled Entity (as such term is defined in Section 5(o)(v)) or
(2) an employee welfare benefit plan that provides medical or
life insurance benefits to retirees (other than pursuant to
Section 601 et.seq. of ERISA).
(ii) Each Benefit Plan has been administered in accordance
with its terms, except where the failure to so administer a
Benefit Plan, individually or in the aggregate, would not have a
Material Adverse Effect. The Companies and all the Benefit Plans
are in compliance with the applicable provisions of ERISA and the
Code, except where the failure to be in such compliance,
individually or in the aggregate, would not have a Material
Adverse Effect.
(iii) Except as set forth in Schedule 5(o) and except for
the failure to make a contribution or payment that, individually
or in the aggregate, would not have a Material Adverse Effect,
all contributions to, and payments from, the Benefit Plans that
may have been required to be made in accordance with the Benefit
Plans have been timely made.
(iv) No "prohibited transaction" (as defined in Section
4975 of the Code or Section 406 of ERISA) has occurred that
involves the assets of any Benefit Plan and that could subject
any Company or Subsidiary or any of their employees, or, to the
knowledge of Seller, a trustee, administrator or other fiduciary
of any trusts created under any Benefit Plan to the tax or
penalty on prohibited transactions
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imposed by Section 4975 of ERISA or the sanctions imposed under
Title I of ERISA, except for prohibited transactions that,
individually or in the aggregate, would not have a Material
Adverse Effect. Neither Seller nor any trustee, administrator or
other fiduciary of any Benefit Plan nor any agent of any of the
foregoing has engaged in any transaction or acted or failed to
act in a manner that could subject any Company or Subsidiary to
any liability for breach of fiduciary duty under ERISA or any
other applicable law, except for such transactions, actions and
failures that, individually or in the aggregate, would not have a
Material Adverse Effect.
(v) With respect to any employee benefit plan, within the
meaning of Section 3(3) of ERISA, which is not listed in Schedule
5(o) but which is sponsored, maintained or contributed to, or has
been sponsored, maintained or contributed to within six years
prior to the Closing Date, by Seller or any corporation, trade,
business or entity under common control with any Company or any
Subsidiary, within the meaning of Section 414(b), (c), (m), or
(o) of the Code or Section 4001 of ERISA ("Commonly Controlled
Entity"), (A) no withdrawal liability, within the meaning of
Section 4201 of ERISA, has been incurred, which withdrawal
liability has not been satisfied, (B) no liability to the Pension
Benefit Guaranty Corporation has been incurred by Seller or any
Commonly Controlled Entity, which liability has not been
satisfied, (C) no accumulated funding deficiency, whether or not
waived, within the meaning of Section 302 of ERISA or Section 412
of the Code has been incurred, and (D) all contributions
(including installments) to such plan required by Section 302 of
ERISA and Section 412 of the Code have been timely made.
(p) Absence of Changes or Events. Except as set forth in Schedule
5(p), since June 30, 1997, there has not been any material adverse
change in the business, assets, financial condition or results of
operations of the Companies and the Subsidiaries, taken as a whole,
other than changes relating to United States or foreign economies in
general or the Companies' and the Subsidiaries' industries in general
and not specifically relating to any Company or Subsidiary. Buyer
acknowledges that there may have been disruption to the Companies' and
the Subsidiaries' business as a result of the announcement by Seller of
its intention to sell the Companies (and there may be disruption to the
Companies' and the Subsidiaries' business as a result of the execution
of this Agreement and the consummation of the transactions contemplated
hereby), and Buyer agrees that such disruptions do not and shall not
constitute a breach of this Section 5(p). Seller is not aware of any
such disruption, and Seller agrees that Seller will notify Buyer of any
such disruption of which it may become aware. Except as set forth in
Schedule 5(p), since June 30, 1997, Seller has caused the business of
the Companies and the Subsidiaries to be conducted, in all material
respects, in the ordinary course consistent with past practices, and
neither any Company nor any Subsidiary has taken any action that, if
taken after the date of this Agreement, would constitute a breach of any
of the covenants set forth in Section 6(b).
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(q) Compliance with Applicable Laws; Environmental Matters.
(i) The Companies and the Subsidiaries are in compliance
with all applicable statutes, laws, ordinances, rules, orders and
regulations of any Governmental Entity ("Applicable Laws"),
except for instances of noncompliance that, individually or in
the aggregate, would not have a Material Adverse Effect. This
Section 5(q)(i) does not relate to matters with respect to
environmental matters, which are the subject of Section 5(q)(ii).
(ii) None of the Companies or the Subsidiaries have had
any environmental liability asserted against it by any third
party, including without limitation, any federal, state or local
governmental authority, that has had or which could reasonably be
expected to have a Material Adverse Effect.
(r) Employee and Labor Matters. Except as set forth in Schedule
5(r), (i) there is not and there has not been, any labor strike,
dispute, work stoppage or lockout pending, or, to the knowledge of
Seller, threatened, against any Company or Subsidiary; (ii) to the
knowledge of Seller, no union organizational campaign is in progress
with respect to the employees of any Company or Subsidiary and no
question concerning representation exists respecting such employees;
(iii) neither any Company nor Subsidiary is engaged in any unfair labor
practice; (iv) there is no unfair labor practice charge or complaint
against any Company or Subsidiary pending, or, to the knowledge of
Seller, threatened, before the National Labor Relations Board; (v) there
are no pending, or, to the knowledge of Seller, threatened, union
grievances against any Company or Subsidiary as to which there is a
reasonable possibility of adverse determination and that, if so
determined, individually or in the aggregate, would have a Material
Adverse Effect; (vi) there are no pending, or, to the knowledge of
Seller, threatened, charges against any Company or Subsidiary or current
or former employee of any Company or Subsidiary before the Equal
Employment Opportunity Commission or any state or local agency
responsible for the prevention of unlawful employment practices; (vii)
there are no pending, or to the knowledge of Seller, threatened charges
or complaints against any Company or Subsidiary under the federal
Occupational Health and Safety Act; and (viii) none of Seller, the
Companies or the Subsidiaries has received written notice of the intent
of any Governmental Entity responsible for the enforcement of labor or
employment laws to conduct an investigation of any Company or Subsidiary
and, to the knowledge of Seller, no such investigation is in progress.
(s) Licenses; Permits. Schedule 5(s) sets forth a true and
complete list of all licenses, permits and authorizations issued or
granted to the Companies and the Subsidiaries by Governmental Entities
which are necessary or desirable for the conduct of the business of the
Companies and the Subsidiaries. Except as set forth in Schedule 5(s) or
as would not have a Material Adverse Effect, all such licenses, permits
and authorizations are validly held by the relevant Company or
Subsidiary, the Companies and the Subsidiaries have complied in all
respects with all terms and conditions thereof and the same will not be
subject to suspension, modification, revocation or nonrenewal as a
result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
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(t) Regulatory Filings. The Companies and the Subsidiaries have
filed or otherwise provided all reports, data, registrations, filings,
other information and applications required to be filed with or
otherwise provided to the insurance regulatory commissions, agencies or
authorities of all jurisdictions in which they are authorized to do
business as an insurer, and all other Governmental Entities with
jurisdiction over such Companies and Subsidiaries or any of their
operations, and all required regulatory approvals in respect thereof are
in full force and effect on the date hereof, except for failures to file
or otherwise provide reports, data, registrations, filings, or other
information or applications, if any, which singly, or in the aggregate,
do not have a Material Adverse Effect. All such regulatory filings were
in compliance, in all material respects, with applicable law when filed,
and no deficiencies have been asserted by any such Governmental Entity
with respect to such regulatory filings that have not been satisfied or
otherwise would not result in a Material Adverse Effect.
(u) Insurance Business. All policies of insurance issued by the
Companies and the Subsidiaries as now in force are, to the extent
required under applicable law, on forms which have been approved by
applicable insurance regulatory authorities or which have been filed and
not objected to by such authorities within the period provided for
objection. Any premium rates required to be filed with or approved by
insurance regulatory authorities have been so filed or approved and
premiums charged conform thereto. The foregoing representations
contained in this Section 5(u) shall not apply with respect to the
absence of any approval or filing which would not have a Material
Adverse Effect.
(v) Transactions with Affiliates. Except as set forth in Schedule
5(v), none of the agreements, contracts or other arrangements set forth
in Schedule 5(l) between any Company or Subsidiary, on the one hand, and
Seller or any of its affiliates (other than any Company or Subsidiary),
on the other hand, will continue in effect subsequent to the Closing.
Except as set forth in Schedule 5(v), after the Closing neither Seller
nor any of its affiliates will have any interest in any property (real
or personal, tangible or intangible) or contract used in or pertaining
to the business of the Companies or the Subsidiaries. Neither Seller
nor, to the knowledge of Seller, any of its affiliates has any direct or
indirect ownership interest in any person (other than a Subsidiary) in
which any Company or Subsidiary has any direct or indirect ownership
interest or with which any Company or Subsidiary competes or has a
business relationship. Except as set forth in Schedule 5(v), Seller
provides no services to any of the Companies or the Subsidiaries.
(w) Corporate Name. Except as set forth in Schedule 5(w), to the
knowledge of Seller, the Companies and the Subsidiaries (i) have the
exclusive right to use their respective names as the name of a
corporation in any jurisdiction in which such Company or Subsidiary does
business and (ii) have not received any notice of conflict with respect
to the rights of others regarding the corporate names of the Companies
and the Subsidiaries. Except as set forth in Schedule 5(w), to the
knowledge of Seller, no person is presently authorized by Seller, the
Companies or the Subsidiaries to use the name of any Company or
Subsidiary. Seller has previously made available to Buyer copies of any
documents in the possession of Seller granting any authorizations of the
type referred to in the previous sentence.
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(x) Private Offering. Neither Seller, any of its affiliates nor
anyone acting on its or their behalf has issued, sold or offered any
security of the Companies to any person under circumstances that would
cause the issuance and sale of the Shares, as contemplated by this
Agreement, to be subject to the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act"). Neither
Seller, any of its affiliates nor anyone acting on its or their behalf
will offer the Shares or any part thereof or any similar securities for
issuance or sale to, or solicit any offer to acquire any of the same
from, anyone so as to make the issuance and sale of the Shares subject
to the registration requirements of Section 5 of the Securities Act.
Assuming the representations of Buyer contained in Section 7(c) are true
and correct, the issuance, sale and delivery of the Shares hereunder are
exempt from the registration and prospectus delivery requirements of the
Securities Act.
6. Covenants of Seller. Seller covenants and agrees as follows:
(a) Access. Prior to the Closing, Seller shall, and shall cause
each Company and Subsidiary to, give Buyer and its representatives,
employees, counsel and accountants reasonable access, during normal
business hours and upon reasonable notice, to the personnel, properties,
books and records of each Company and Subsidiary; provided, however,
that such access does not unreasonably disrupt the normal operations of
Seller, the Companies or the Subsidiaries.
(b) Ordinary Conduct. Except as set forth in Schedule 6(b) or
otherwise expressly permitted by the terms of this Agreement, from the
date hereof to the Closing, Seller shall cause the business of the
Companies and the Subsidiaries to be conducted, in all material
respects, in the ordinary course consistent with past practices and
shall make all reasonable efforts consistent with past practices to
preserve their relationships with customers and others with whom any
Company or any Subsidiary deals; provided that Seller shall not be
obligated to, directly or indirectly, provide any funds to any Company
or Subsidiary. Seller shall not, and shall not permit any Company or
Subsidiary to, take any action that would, or that could reasonably be
expected to, result in any of the conditions to the purchase and sale of
the Shares set forth in Section 4(a) not being satisfied. In addition,
except as set forth in Schedule 6(b) or otherwise expressly permitted by
the terms of this Agreement, Seller shall not permit any Company or
Subsidiary to do any of the following without the prior written consent
of Buyer:
(i) amend its Certificate of Incorporation or Bylaws;
(ii) declare or pay any dividend or make any other
distribution to its stockholders whether or not upon or in
respect of any shares of its capital stock; provided, however,
that (A) dividends and distributions may continue to be made by
the Subsidiaries to the Companies and (B) the Companies may
declare the Galtney Distribution to Seller;
(iii) redeem or otherwise acquire any shares of its
capital stock or issue any capital stock (except upon the
exercise of outstanding options) or any option, warrant
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or right relating thereto or any securities convertible into or
exchangeable for any shares of capital stock;
(iv) adopt or amend in any material respect any Benefit
Plan or collective bargaining agreement, except as required by
law;
(v) grant to any executive officer or employee any
increase in compensation or benefits, except in the ordinary
course of business consistent with past practice or as may be
required under existing agreements and except for any increases
for which Seller shall be solely obligated;
(vi) incur or assume any liabilities, obligations or
indebtedness for borrowed money or guarantee any such
liabilities, obligations or indebtedness, other than in the
ordinary course of business consistent with past practice;
provided that in no event shall any Company or Subsidiary incur,
assume or guarantee any long-term indebtedness for borrowed
money;
(vii) permit, allow or suffer any of its assets to become
subjected to any mortgage, lien, security interest, encumbrance,
easement, covenant, right-of-way or other similar restriction;
(viii) cancel any indebtedness (individually or in the
aggregate) or waive any claims or rights of substantial value;
(ix) except for dividends and distributions permitted
under clause (ii) above and intercompany transactions in the
ordinary course of business, pay, loan or advance any amount to,
or sell, transfer or lease any of its assets to, or enter into
any agreement or arrangement with, Seller or any of its
affiliates (other than the Companies and the Subsidiaries);
provided, however, that Western may repay the Surplus Debenture;
(x) make any change in any method of accounting or
accounting practice or policy other than those required by United
States generally accepted accounting principles;
(xi) make any change in actuarial methods for maintaining
reserves or otherwise take any action with respect to reserves
other than consistent with past practices as reflected in the
Unaudited June 30, 1997 GAAP Financial Statements and the Western
Indemnity Insurance Company Analysis of Loss and Loss Adjustment
Expense Reserves as of December 31, 1996, prepared by Milliman &
Robertson, Inc.;
(xii) acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division
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thereof or otherwise acquire any assets other than in the
ordinary course of business consistent with past practices;
(xiii) make or incur any capital expenditure that is not
currently approved in writing or budgeted and which,
individually, is in excess of $10,000 or make or incur any such
expenditures which, in the aggregate, are in excess of $50,000;
(xiv) sell, lease or otherwise dispose of any of its
assets except in the ordinary course of business consistent with
past practice;
(xv) enter into any lease of real property, except any
renewals of existing leases in the ordinary course of business;
(xvi) adversely change the quality of any Company's
invested assets as referred to on line 9 of page 2 of the
National Association of Insurance Commissioner's Annual Statement
(the "Invested Assets") from those reflected on the unaudited
statutory balance sheet of Western as of June 30, 1997, and the
related unaudited statutory statement of income and changes in
capital and surplus and cash flows for the six months then ended,
which previously have been furnished to Buyer, except as
contemplated by Section 3(a); or
(xvii) agree, whether in writing or otherwise, to do any
of the foregoing.
(c) Financial Statements and Reserve Analysis. As soon as
reasonably practicable, and in no event less than 10 days prior to the
Closing Date, Seller shall deliver to Buyer the Audited December 31,
1996 GAAP Financial Statements, the Audited September 30, 1997 GAAP
Financial Statements, the Audited September 30, 1997 SAP Financial
Statements and the Western Indemnity Insurance Company Analysis of Loss
and Loss Adjustment Expense Reserves as of September 30, 1997, to be
prepared by Milliman & Robertson, Inc.
(d) Confidentiality. Seller shall keep confidential, and cause
its affiliates and instruct its and their officers, directors, employees
and advisors to keep confidential, all information relating to the
Companies and the Subsidiaries and their business, except as required by
law or administrative process and except for information which is
available to the public on the Closing Date, or thereafter becomes
available to the public other than as a result of a breach of this
Section 6(d); provided, however, that notwithstanding this Section 6(d)
Seller and its affiliates and their officers, directors, employees and
advisors shall be permitted to use all information relating to the
operations of the brokerage aspect of the business of the Companies and
the Subsidiaries. The covenant set forth in this Section 6(d) shall
terminate three years after the Closing Date.
(e) Insurance. Seller shall keep, or cause to be kept, all
insurance policies set forth in Schedule 5(n), or suitable replacements
therefor, in full force and effect through the close of business on the
Closing Date. Any and all additional insurance policies maintained
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with respect to the Companies and the Subsidiaries and their respective
assets and properties are owned and maintained by Seller and its
affiliates (other than the Companies and the Subsidiaries). None of
Buyer, any Company or any Subsidiary will have any rights under any such
additional insurance policies from and after the Closing Date.
(f) Assignment of Confidentiality Agreements. On the Closing
Date, Seller shall assign to Buyer its rights under all confidentiality
agreements entered into by Seller with any person in connection with the
proposed sale of the Companies to the extent such rights relate to the
Companies and the Subsidiaries. Copies of such confidentiality
agreements shall be provided to Buyer three days prior to the Closing
Date.
(g) Resignations. On the Closing Date, Seller shall cause to be
delivered to Buyer duly signed resignations (from the applicable board
of directors), effective immediately after the Closing, of all directors
of each Company and Subsidiary and shall take such other action as is
necessary to accomplish the foregoing.
(h) Supplemental Disclosure. Seller shall have the continuing
obligation until the Closing promptly to supplement or amend the
Schedules hereto with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in such Schedules;
provided, however, that for the purpose of the rights and obligations of
the parties hereunder and subject to the provisions of Section 4(c), any
such supplemental or amended Schedule shall not be deemed to have been
disclosed as of the date of this Agreement unless so agreed in writing
by Buyer.
(i) Certain Licenses and Permits. Seller covenants that all
licenses, permits and authorizations which are held in the name of any
employee, officer, director, stockholder, agent or otherwise on behalf
of any Company or Subsidiary shall be duly and validly transferred to
such Company or Subsidiary without consideration prior to the Closing
and that the warranties, representations, covenants and conditions
contained in this Agreement shall apply to the same as if held by such
Company or Subsidiary as of the date hereof.
(j) Non-Competition. For a period of three years from the
Closing, Seller and its subsidiaries shall not, and shall cause each of
its controlled affiliates not to, directly or indirectly:
(i) engage in activities or businesses which are
substantially in competition with the Company and the
Subsidiaries ("Competitive Activities"); and
(ii) perform any action, activity or course of conduct
which is substantially detrimental to the Companies' and the
Subsidiaries' business or business reputation ("Detrimental
Activities"), including (A) soliciting, recruiting or hiring any
employees of any Company or Subsidiary or persons who have worked
for any Company or Subsidiary and (B) soliciting or encouraging
any employee of any Company or Subsidiary to leave the employment
of any Company or Subsidiary.
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Notwithstanding anything to the contrary contained in this
Section 6(j), Buyer hereby agrees that the foregoing covenant shall not be
deemed breached as a result of (i) the ownership by Seller or any affiliate of
Seller of less than 50% of the equity of any person which engages, directly or
indirectly, in Competitive Activities; provided, however, that the total
investment of Seller or such affiliate by way of capital commitment, loan and/or
guarantee of indebtedness may not exceed $10.0 million, (ii) (A) the ownership
by Seller of 100% of the equity of any person, (B) the ownership by Seller of an
interest in any controlled affiliate (whether through stock ownership,
stockholders agreement, management agreement or otherwise) or (C) the formation
by Seller of any insurance company; provided, however that any person specified
in clause (A), (B) or (C) may only write insurance business which any Company or
Subsidiary elects not to write under its right of first refusal pursuant to
Section 9(g) or any other insurance business which Buyer and Seller agree shall
not breach this Section 6(j) or (iii) any sale or transfer of stock or assets by
Seller or any of its Subsidiaries to, or any merger or other consolidation of
Seller or any of its Subsidiaries with, any person which engages, directly or
indirectly, in Competitive Activities.
(k) Repayment of Surplus Debenture. Prior to Closing, Western
shall repay the surplus debenture (the "Surplus Debenture") issued
effective December 29, 1995 to GHI in the original amount of $5.5
million.
(l) Non-Piracy Agreements. Seller agrees to cause non-piracy
agreements in the form of Exhibit E to be distributed to all employees
of the Companies for execution by such employees.
(m) Schedule of Invested Assets. No later than five business days
prior to the Closing Date, Seller shall deliver to Buyer an updated
schedule of Invested Assets of the Companies as of a date three business
days prior to the delivery of the updated schedule.
7. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller as follows:
(a) Authority. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Buyer has all requisite corporate power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. All corporate acts and other
proceedings required to be taken by Buyer to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly executed and delivered by Buyer and constitutes
a legal, valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms.
(b) No Conflicts; Consents. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereby and compliance with the terms hereof shall not, conflict with, or
result in any violation of or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a benefit
under, or result in the creation of any
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lien, claim, encumbrance, security interest, option, charge or
restriction of any kind upon any of the properties or assets of Buyer or
any subsidiary of Buyer under, any provision of (i) the Certificate of
Incorporation or By-laws of Buyer or the comparable governing
instruments of any subsidiary of Buyer, (ii) any note, bond, mortgage,
indenture, deed of trust, license, lease, contract, commitment,
agreement or arrangement to which Buyer or any subsidiary of Buyer is a
party or by which any of their respective properties or assets are bound
or (iii) any judgment, order, or decree, or statute, law, ordinance,
rule or regulation applicable to Buyer or any subsidiary of Buyer or
their respective properties or assets , other than, in the case of
clauses (ii) and (iii) above, any such items that, individually or in
the aggregate, would not have a material adverse effect on the ability
of Buyer to consummate the transactions contemplated hereby. No consent,
approval, license, permit, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be
obtained or made by or with respect to Buyer or any of its subsidiaries
or their respective affiliates in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby, other than (I) compliance with and
filings under the HSR Act, if applicable, (II) compliance with and
filings under any applicable state insurance or insurance holding
company laws and (III) those which if not obtained would have no
material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
(c) Securities Act. The Shares purchased by Buyer pursuant to
this Agreement are being acquired for investment only and not with a
view to any public distribution thereof, and Buyer shall not offer to
sell or otherwise dispose of the Shares so acquired by it in violation
of any of the registration requirements of the Securities Act.
(d) Actions and Proceedings, etc. There are no (i) outstanding
judgments, orders, injunctions or decrees of any Governmental Entity or
arbitration tribunal against Buyer or any of its affiliates, (ii)
lawsuits, actions or proceedings pending or, to the knowledge of Buyer,
threatened against Buyer or any of its affiliates, or (iii)
investigations by any Governmental Entity which are, to the knowledge of
Buyer, pending or threatened against Buyer or any of its affiliates, and
which, in the case of each of clauses (i), (ii) and (iii), have or could
have a material adverse effect on the ability of Buyer to consummate the
transactions contemplated hereby.
(e) Availability of Funds. Buyer has cash available or has
existing borrowing facilities which together are sufficient to enable it
to consummate the transactions contemplated by this Agreement. True and
correct copies of any such facilities and commitments have been provided
to Seller. The financing required to consummate the transactions
contemplated hereby is collectively referred to as the "Financing". As
of the date hereof, Buyer has no reason to believe that any of the
conditions to the Financing will not be satisfied or that the Financing
will not be available on a timely basis for the transactions
contemplated by this Agreement.
(f) No Knowledge of Misrepresentations or Omissions. Buyer has no
knowledge that the representations and warranties of Seller made in this
Agreement qualified as to
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materiality are not true and correct, or that those not so qualified are
not true and correct in all material respects, and Buyer has no
knowledge of any material errors in, or material omissions from, the
Schedules to this Agreement. Buyer has received or been afforded the
opportunity to review prior to the date hereof all written materials
which Seller was required to deliver or make available, as the case may
be, to Buyer pursuant to this Agreement on or prior to the date hereof.
8. Covenants of Buyer. Buyer covenants and agrees as follows:
(a) Confidentiality. Buyer acknowledges that the information
being provided to it in connection with the purchase and sale of the
Shares and the consummation of the other transactions contemplated
hereby is subject to the terms of a confidentiality agreement dated
April 5, 1997, between Buyer and Seller (the "Confidentiality
Agreement"), the terms of which are incorporated herein by reference.
Effective upon, and only upon, the Closing, the Confidentiality
Agreement shall terminate with respect to information relating solely to
the Companies and the Subsidiaries; provided that Buyer acknowledges
that any and all other information provided to it by Seller or Seller's
representatives concerning Seller shall remain subject to the terms and
conditions of the Confidentiality Agreement after the Closing Date.
(b) No Additional Representations. Buyer acknowledges that it and
its representatives have been permitted full and complete access to the
books and records, facilities, equipment, tax returns, contracts,
insurance policies (or summaries thereof) and other properties and
assets of the Companies and the Subsidiaries which it and its
representatives have desired or requested to see and/or review, and that
it and its representatives have had a full opportunity to meet with the
officers and employees of Seller, the Companies and the Subsidiaries to
discuss the businesses and assets of the Companies and the Subsidiaries.
Buyer acknowledges that none of Seller, any Company, any Subsidiary or
any other person has made any representation or warranty, expressed or
implied, as to the accuracy or completeness of any information regarding
the Companies and the Subsidiaries furnished or made available to Buyer
and its representatives, except as expressly set forth in this Agreement
or the Schedules hereto and none of Seller, any Company, any Subsidiary
or any other person shall have or be subject to any liability to Buyer
or any other person resulting from the distribution to Buyer, or Buyer's
use of, any such information, including the DLJ Confidential Memorandum
and any information, documents or material made available to Buyer in
certain "data rooms", management presentations or in any other form in
expectation of the transactions contemplated hereby.
(c) Employment Agreements. Buyer acknowledges that certain senior
employees of the Companies are parties to the agreements described on
Schedule 8(c). Buyer agrees to assume any and all obligations of the
Companies and Seller to the employees under such agreements, including
without limitation any payment obligations.
(d) Agreement with Western Litigation Services Inc. Prior to the
Closing Date, Buyer shall enter into an agreement with Western
Litigation Services Inc. ("WLS") for a term of at least one year,
providing for services to be rendered by WLS to Buyer, at a rate
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acceptable to Buyer; provided, however, that if Buyer and WLS have not
entered into such agreement prior to the Closing Date, then Buyer shall
pay WLS for its services for a period of 90 days following the Closing
Date at the existing contractual rate of $20,000 per month as set forth
in the agreement between Western and WLS set forth on Schedule 5(l).
9. Mutual Covenants. Each of Seller and Buyer covenants and
agrees as follows:
(a) Cooperation. Buyer and Seller shall cooperate with each
other, and shall cause their officers, employees, agents, auditors and
representatives to cooperate with each other, for a period of 60 days
after the Closing to ensure the orderly transition of the Companies and
the Subsidiaries from Seller to Buyer and to minimize any disruption to
the respective businesses of Seller, Buyer or the Companies and the
Subsidiaries that might result from the transactions contemplated
hereby. After the Closing, upon reasonable written notice, Buyer and
Seller shall furnish or cause to be furnished to each other and their
employees, counsel, auditors and representatives access, during normal
business hours, to such information and assistance relating to the
Companies and the Subsidiaries as is reasonably necessary for financial
reporting and accounting matters, the preparation and filing of any tax
returns, reports or forms or the defense of any tax claim or assessment.
Each party shall reimburse the other for reasonable out-of-pocket costs
and expenses incurred in assisting the other pursuant to this Section
9(a). Neither party shall be required by this Section 9(a) to take any
action that would unreasonably interfere with the conduct of its
business or unreasonably disrupt its normal operations (or, in the case
of Buyer, the business or operations of any Company or Subsidiary).
(b) Publicity. Seller and Buyer agree that, from the date hereof
through the Closing Date, no public release or announcement concerning
the transactions contemplated hereby shall be issued by either party
without the prior consent of the other party (which consent shall not be
unreasonably withheld), except as such release or announcement may be
required by law or the rules or regulations of any United States or
foreign securities exchange, in which case the party required to make
the release or announcement shall allow the other party reasonable time
to comment on such release or announcement in advance of such issuance.
(c) Best Efforts. Subject to the terms and conditions of this
Agreement (including the provisions set forth in Section 9(d)), each
party shall use its reasonable best efforts to cause the Closing to
occur. Without limiting the foregoing or the provisions set forth in
Section 9(d), Buyer and Seller shall use their respective best efforts
to cause the Closing to occur on or prior to December 1, 1997.
(d) Filings with Governmental Entities. (i) Each of Seller and
Buyer shall as promptly as practicable, but in no event later than ten
business days following the execution and delivery of this Agreement,
file with the United States Federal Trade Commission (the "FTC") and the
United States Department of Justice (the "DOJ") the notification and
report form, if any, required for the transactions contemplated hereby
and any supplemental information requested in connection therewith
pursuant to the HSR Act. Any such
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notification and report form and supplemental information shall be in
substantial compliance with the requirements of the HSR Act. Each of
Buyer and Seller shall furnish to the other such necessary information
and reasonable assistance as the other may request in connection with
its preparation of any filing or submission which is necessary under the
HSR Act. Seller and Buyer shall keep each other apprised of the status
of any communications with, and any inquiries or requests for additional
information from, the FTC and the DOJ and, shall comply promptly with
any such inquiry or request. Each of Seller and Buyer shall use its best
efforts to obtain any clearance required under the HSR Act for the
purchase and sale of the Shares.
(ii) (A) Buyer shall file a Form A with the Texas
Department of Insurance within ten business days following the
execution of this Agreement and (B) each of Seller and Buyer
shall as promptly as practicable make any other filings under any
applicable state insurance or insurance holding company laws, if
any, required in connection with the transactions contemplated
hereby.
(e) Records. On the Closing Date, Seller shall deliver or cause
to be delivered to Buyer all agreements, documents, books, records and
files (collectively, "Records"), if any, in the possession of Seller
relating to the business and operations of the Companies and the
Subsidiaries to the extent not then in the possession of the Companies
and the Subsidiaries, subject to the following exceptions:
(i) Buyer recognizes that certain Records may contain
incidental information relating to the Companies and the
Subsidiaries or may relate primarily to subsidiaries or divisions
of Seller other than the Companies and the Subsidiaries, and that
Seller may retain such Records and shall provide copies of the
relevant portions thereof to Buyer;
(ii) Seller may retain all Records prepared in connection
with the sale of the Shares, including bids received from other
parties and analyses relating to the Companies and the
Subsidiaries; and
(iii) Seller may retain any tax returns, reports or forms,
and Buyer shall be provided with copies of such returns, reports
or forms only to the extent that they relate to the Companies'
and the Subsidiaries' separate returns or separate tax liability.
(f) Support Services. Seller provides the Companies and the
Subsidiaries with certain support services, including payroll and human
resources, legal, tax and benefit plan administration. Buyer
acknowledges that all such support services will be terminated as of the
Closing Date; provided, however, that at Buyer's request, Seller shall
continue to provide such services for a period of up to 60 days
following the Closing Date, and Buyer shall reimburse Seller for costs
associated therewith in an amount equal to $100,000 per month, plus any
out-of-pocket expenses directly incurred by or on behalf of Buyer, the
Companies or the Subsidiaries.
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(g) Ongoing Relationship between Seller and Buyer. For a period
of three years from the Closing Date, (i) Seller shall give Buyer the
opportunity to quote on substantially all new business produced by
Seller generally classified as medical professional liability, both
primary and excess, including managed care and related E & O and D & O
coverage, provider stop loss accounts and workers' compensation coverage
for health care providers or entities, (ii) Seller shall give Buyer a
right of first refusal (for a period of 48 hours) on the renewal of all
business written with Western which is in effect on the Closing Date and
(iii) Western shall continue its existing fronting arrangement at the
same fronting fee for Columbia/HCA (Healthcare Indemnity) and (iv) Buyer
shall maintain an office in Houston, Texas ; provided, however, that if
a customer or prospective customer of GGI or any of its subsidiaries
requests that its business not be renewed or written with Western, then
GGI shall be released from its obligations under clauses (i), (ii) and
(iii) of this Section 9(g). During such period, commissions on business
produced by Seller shall be at a rate of 12.5% for new business, and
commissions on renewal business shall remain at the rates in effect on
the Closing Date; provided, however, that it is the intention of Buyer
and Seller that commissions on new business produced by Seller in excess
of $300,000 of premium shall be at a rate of 12.5%, but that if the
parties mutually agree that obtaining such new business requires a
lesser commission, the parties may negotiate a lesser commission which
shall be mutually agreeable to Buyer and Seller. For a period of three
years from the Closing Date, Seller shall continue to provide
reinsurance brokerage services in accordance with the arrangements in
effect on the Closing Date for any of the Companies' reinsurance
programs in effect on the Closing Date which remain in effect after the
Closing Date. If Buyer decides to change the terms of any of the
Companies' reinsurance programs in effect on the Closing Date, Buyer
shall give Seller a right of first refusal (for a period of ten business
days) on such new reinsurance programs.
10. Employee Benefit Matters.
(a) Benefit Plans. On or before the Closing Date, but effective
immediately prior to the Closing, except as may be required to effect
the transfer of interests under Seller's 401(k) Plan as provided in
Section 10(c), Seller shall cause each Company and each Subsidiary to
(i) cease to be sponsors and/or adopting employers under each Benefit
Plan listed on Schedule 5(o) and (ii) transfer all of their respective
obligations and liabilities relating to the Benefit Plans listed on
Schedule 5(o) to Seller and/or one or more of its subsidiaries
designated by Seller (other than any Company or any Subsidiary). Seller
shall indemnify Buyer against any liability existing under or relating
to a Benefit Plan as of the Closing Date, including, without limitation,
any liability arising under a defined benefit or multiemployer plan
which is, or has been, sponsored, maintained or contributed to by any
Commonly Controlled Entity.
(b) Buyer's Plans. Effective as of the Closing Date, Buyer shall
cause each individual who is employed by any Company or any Subsidiary
as of the Closing (a "Continued Employee") to be provided with benefits
on a basis substantially similar to the benefits generally provided to
Buyer's employees consistent with Buyer's normal practice. Buyer shall
cause each Continued Employee and his or her eligible dependents
(including,
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without limitation, all such Continued Employee's dependents covered
immediately prior to the Closing Date by a group health plan listed on
Schedule 5(o)) to be covered under a group health plan that (i) provides
medical and dental benefits to the Continued Employee and such eligible
dependents effective immediately upon the Closing, (ii) credits such
Continued Employee, for the year during which such coverage under such
group health plan begins, with any deductibles and copayments already
incurred during such year under Seller's group health plan, and (iii)
provided the Continued Employee was covered under Seller's group health
plan on the Closing Date, waives any preexisting condition restrictions
to the extent necessary to provide immediate coverage. Buyer shall cause
the employee benefit plans and programs maintained as of the Closing by
Buyer, the Companies and the Subsidiaries to recognize each Continued
Employee's years of service and level of seniority prior to the Closing
Date with Seller, the Companies and their respective subsidiaries for
purposes of terms of employment and eligibility, vesting and benefit
determination under such plans and programs (other than benefit accruals
under any defined benefit pension plan). If any employee benefit plan or
program covering Continued Employees is established by Buyer, a Company
or a Subsidiary after the Closing Date and such plan or program
recognizes service with Buyer for eligibility, vesting, benefit
eligibility or benefit accrual purposes, then such plan or program shall
likewise recognize service with Seller, the Companies and the
Subsidiaries for each similarly situated Continued Employee.
(c) 401(k) Plans. As soon as practicable following the Closing
Date, Seller shall cause to be transferred from the trustees of the
Galtney Group, Inc. 401(k) Plan ("Seller's 401(k) Plan") to the trustees
of the Frontier Insurance Group, Inc. 401(k) Profit Sharing Plan
("Buyer's 401(k) Plan") an amount in cash equal to the aggregate account
balances of the Continued Employees under Seller's 401(k) Plan
determined as of the transfer date (which shall be a valuation date) in
accordance with the methods of valuation set forth in Seller's 401(k)
Plan; provided, however, that to the extent any Continued Employee owes
any amount to Seller's 401(k) Plan pursuant to the terms of a loan from
such plan to such Continued Employee, an in-kind transfer of such loan
shall be made in lieu of the transfer of cash. From and after the date
of such transfer, Buyer shall cause Buyer's 401(k) Plan to assume the
obligations of Seller's 401(k) Plan with respect to benefits accrued by
the Continued Employees under Seller's 401(k) Plan, and Seller's 401(k)
Plan shall cease to be responsible therefor. Buyer and Seller shall
cooperate in making all appropriate arrangements and filings, if any, in
connection with the transfer described above. Further, Buyer and Seller
shall cooperate and take such actions as are necessary to permit the
continuation of loan repayments by Continued Employees to Seller's
401(k) Plan by payroll deductions during the period beginning on the
Closing Date and ending on the date of the transfer described in this
subsection. Seller represents, covenants and agrees with respect to
Seller's 401(k) Plan, and Buyer represents, covenants and agrees with
respect to Buyer's 401(k) Plan, that, as of the date of the transfer
described in this subsection, such plan (i) will satisfy the
requirements of Sections 401(a), (k), and (m) of the Code, (ii) will
have received a favorable determination letter from the Internal Revenue
Service regarding such qualified status and covering amendments required
under the Tax Reform Act of 1986, the Unemployment Compensation
Amendments of 1992, the Omnibus Reconciliation Act of 1993, and the
final nondiscrimination regulations under Section 401(a)(4) of the Code,
and
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(iii) will have not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which would
adversely affect such qualified status.
11. Further Assurances. From time to time, as and when requested
by either party hereto, the other party shall execute and deliver, or cause to
be executed and delivered, all such documents and instruments and shall take, or
cause to be taken, all such further or other actions (subject to the provisions
of Sections 9(a), 9(d) and 9(e)), as such other party may reasonably deem
necessary or desirable to consummate the transactions contemplated by this
Agreement.
12. Indemnification.
(a) Tax Indemnification. Except as provided in Section 13(e),
Seller shall indemnify Buyer and its affiliates (including the Companies
and the Subsidiaries) and each of their respective officers, directors,
employees, stockholders, agents and representatives and hold them
harmless from all liability (except as reflected on the Closing Date
Balance Sheet) (i) for Taxes of the Companies and the Subsidiaries for
the Pre-Closing Tax Period, (ii) for Taxes of Seller or any other
corporation (as a result of Treasury Regulation 'SS' 1.1502-6(a) or
otherwise) which is or has been affiliated with Seller (other than the
Companies or any of the Subsidiaries), (iii) for Taxes resulting from
the Section 338(g) and 338(h)(10) elections (or any comparable elections
under state or local Tax law) contemplated by Section 12(a) of this
Agreement, (iv) for Taxes with respect to any pre-Closing period
resulting from the Companies and any Subsidiaries ceasing to be included
in the consolidated Federal income Tax return filed by Seller including,
without limitation, any Taxes attributable to the restoration of a
"deferred intercompany transaction" within the meaning of Treasury
Regulations Section 1.1502-13(a)(2) and the recognition of excess loss
accounts, (v) for Taxes imposed on the Companies or any Subsidiaries
directly or indirectly arising out of, resulting from, or attributable
to any transaction contemplated by this Agreement to be performed by
Seller, the Companies or any Subsidiaries on or prior to the Closing
Date, including but not limited to the Section 338(h)(10) election and
the Galtney Distribution, and (vi) for reasonable legal fees and
expenses for any item attributable to any item in clause (i), (ii),
(iii), (iv) or (v) above. Notwithstanding the foregoing, Seller shall
not indemnify and hold harmless Buyer and its affiliates, and each of
their respective officers, directors, employees and agents, from any
liability for Taxes attributable to any action taken after the Closing
by Buyer, any of its affiliates (including any of the Companies or
Subsidiaries), or any transferee of Buyer or any of its affiliates
(other than any such action expressly required by applicable law or by
this Agreement) (a "Buyer Tax Act") or attributable to a breach by Buyer
of its obligations under this Agreement.
Buyer shall, and shall cause the Companies and the Subsidiaries
to, indemnify Seller and its affiliates and each of their respective officers,
directors, employees, stockholders, agents and representatives and hold them
harmless from (i) all liability for Taxes of the Companies and the Subsidiaries
for any taxable period ending after the Closing Date (except to the extent such
taxable period began before the Closing Date, in which case Buyer's indemnity
will cover only that portion of any such Taxes that are not for the Pre-Closing
Tax Period), (ii) all liability for Taxes attributable
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to a Buyer Tax Act or to a breach by Buyer of its obligations under this
Agreement, and (iii) all liability for reasonable legal fees and expenses
attributable to any item in clause (i) or (ii) above.
In the case of any taxable period that includes (but does not end
on) the Closing Date (a "Straddle Period"):
(i) real, personal and intangible property Taxes
("property Taxes") of the Companies and the Subsidiaries for the
Pre-Closing Tax Period shall be equal to the amount of such
property Taxes for the entire Straddle Period multiplied by a
fraction, the numerator of which is the number of days during the
Straddle Period that are in the Pre-Closing Tax Period and the
denominator of which is the number of days in the Straddle
Period; and
(ii) the Taxes of the Companies and the Subsidiaries
(other than property Taxes) for the Pre-Closing Tax Period shall
be computed as if such taxable period ended as of the close of
business on the Closing Date.
Seller's indemnity obligation in respect of Taxes for a Straddle
Period shall initially be effected by its payment to Buyer of the excess of (x)
such Taxes for the Pre-Closing Tax Period over (y) the sum of (i) the amount of
such Taxes paid by Seller or any of its affiliates (other than any of the
Companies or the Subsidiaries) at any time, (ii) the amount of such Taxes paid
by the Companies or the Subsidiaries on or prior to the Closing Date and (iii)
the amount of such Taxes reflected as a liability on the Closing Date Balance
Sheet. Seller shall initially pay such excess to Buyer within 30 days after the
return, report or form with respect to the final liability for such Taxes is
required to be filed (or, if later, is actually filed). If the sum of (i) the
amount of such Taxes paid by Seller or any of its affiliates (other than any of
the Companies or the Subsidiaries) at any time, (ii) the amount of such Taxes
paid by any of the Companies or the Subsidiaries on or prior to the Closing Date
and (iii) the amount of such Taxes reflected as a liability on the Closing Date
Balance Sheet exceeds the amount payable by Seller pursuant to the preceding
sentence, Buyer shall pay to Seller the amount of such excess to the extent it
exceeds any receivable for such Taxes recorded on the Closing Date Balance Sheet
within 30 days after the return, report or form with respect to the final
liability for such Taxes is required to be filed. The payments to be made
pursuant to this paragraph by Seller or Buyer with respect to a Straddle Period
shall be appropriately adjusted to reflect any final determination (which shall
include the execution of Form 870-AD or successor form) with respect to Straddle
Period Taxes.
(b) Other Indemnification by Seller. Seller shall indemnify
Buyer, its affiliates (including the Companies and the Subsidiaries) and
each of their respective officers, directors, employees, stockholders,
agents and representatives against and hold them harmless from any loss,
liability, claim, damage or expense (including reasonable legal fees and
expenses) suffered or incurred by any such indemnified party (other than
any relating to Taxes, for which indemnification provisions are set
forth in Section 12(a)) to the extent arising from (i) any breach of any
representation or warranty of Seller which survives the Closing
contained in this Agreement or in any certificate delivered pursuant
hereto and (ii) any breach of any covenant of Seller contained in this
Agreement requiring performance
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after the Closing Date; provided, however, that Seller shall not have
any liability under clauses (i) and (ii) above until the aggregate of
all losses, liabilities, costs and expenses relating thereto for which
Seller would, but for this proviso, be liable exceeds on a cumulative
basis $500,000 (the "Basket"), at which time Seller shall be liable for
all such losses, liabilities, costs and expenses, in excess of the
Basket; and provided further, however, that Seller shall not have any
liability under clauses (i) and (ii) above for any breach if Buyer had
knowledge of such breach at the time of the Closing; and provided
further, however, that Seller's liability under clauses (i) and (ii)
above shall in no event exceed $5.0 million (except that this proviso
shall not apply to (x) any wilful breach of any covenant by Seller, (y)
any breach of any representation or warranty contained in Section 5(c),
5(e) or 5(f), or (z) any liability asserted against the Companies or the
Subsidiaries for actions taken by Seller or its affiliates relating
solely to Seller or its affiliates (not including the Companies and the
Subsidiaries) based upon a "piercing the corporate veil" theory of
liability); and provided further, however, that Seller shall not have
any liability under this Section 12(b) to the extent the liability or
obligation arises as a result of any action taken or omitted to be taken
by Buyer or any of its affiliates (including any officers or employees
of the Companies and the Subsidiaries that are intended to have an
equity interest or rights or options to obtain an equity interest in
Buyer or its affiliates, including the Companies, following the
Closing). For purposes of the indemnification provided by Seller
pursuant to this Section 12(b) only and for no other purpose, the
determination of whether there has been a breach of a representation or
warranty shall be made without reference to the word "material" and the
words "Material Adverse Effect" contained in such representation or
warranty.
Buyer acknowledges and agrees that, (i) other than the
representations and warranties of Seller specifically contained in this
Agreement, there are no representations or warranties of Seller either expressed
or implied with respect to the transactions contemplated hereby, the Companies,
the Subsidiaries or their respective assets, liabilities and business and (ii)
it shall have no claim or right to indemnification pursuant to this Section 12
with respect to any information, documents or materials furnished by Seller or
any of its officers, directors, employees, agents or advisors to Buyer,
including the DLJ Confidential Memorandum and any information, documents or
material made available to Buyer in certain "data rooms", management
presentations or any other form in expectation of the transactions contemplated
hereby.
(c) Other Indemnification by Buyer. Buyer shall, and shall cause
the Companies and the Subsidiaries to, indemnify Seller, its affiliates
and each of their respective officers, directors, employees,
stockholders, agents and representatives against and hold them harmless
from any loss, liability, claim, damage or expense (including reasonable
legal fees and expenses) suffered or incurred by any such indemnified
party (other than any relating to Taxes, for which indemnification
provisions are set forth in paragraph (a) of this Section 12) to the
extent arising from (i) any breach of any representation or warranty of
Buyer which survives the Closing contained in this Agreement or in any
certificate delivered pursuant hereto, (ii) any breach of any covenant
of Buyer contained in this Agreement requiring performance after the
Closing Date, (iii) any guarantee or obligation to assure performance
given or made by Seller or an affiliate of Seller with respect to any
obligation of any Company or Subsidiary set forth in clause (iv) below,
(iv) all obligations and liabilities of
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whatever kind and nature, primary or secondary, direct or indirect,
absolute or contingent, known or unknown, whether or not accrued,
whether arising before, on or after the Closing Date, of any Company or
Subsidiary, including any such obligations or liabilities contained in
the Contracts or any agreement, lease, license, permit, plan or
commitment that, because it fails to meet the relevant threshold amount
or term, is not included within the definition of Contracts (in each
case other than items for which indemnification is provided under
Section 12(b)), or (v) any claim made against Seller or any of its
subsidiaries or affiliates arising out of or related to an allegation
that insurance coverage may not be afforded to the claimant as a result
of circumstances related to the lack of an incident-sensitive trigger in
a Western policy of insurance; provided, however, that Buyer shall not
have any liability under clauses (i) and (ii) above for any breach if
Seller had knowledge of such breach at the time of the Closing.
(d) Losses Net of Insurance, etc. The amount of any loss,
liability, claim, damage, expense or Tax for which indemnification is
provided under this Section 12 shall be net of any amounts recovered or
recoverable by the indemnified party under insurance policies with
respect to such loss, liability, claim, damage, expense or Tax
(collectively, a "Loss") and shall be (i) increased to take account of
any net Tax cost incurred by the indemnified party arising from the
receipt of indemnity payments hereunder (grossed up for such increase)
and (ii) reduced to take account of any net Tax benefit realized by the
indemnified party arising from the incurrence or payment of any such
Loss. In computing the amount of any such Tax cost or Tax benefit, the
indemnified party shall be deemed to recognize all other items of
income, gain, loss, deduction or credit before recognizing any item
arising from the receipt of any indemnity payment hereunder or the
incurrence or payment of any indemnified Loss. Any indemnification
payment hereunder shall initially be made without regard to this
paragraph and shall be increased or reduced to reflect any such net Tax
cost (including gross-up) or net Tax benefit only after the indemnified
party has actually realized such cost or benefit. For purposes of this
Agreement, an indemnified party shall be deemed to have "actually
realized" a net Tax cost or a net Tax benefit to the extent that, and at
such time as, the amount of Taxes payable by such indemnified party is
increased above or reduced below, as the case may be, the amount of
Taxes that such indemnified party would be required to pay but for the
receipt of the indemnity payment or the incurrence or payment of such
Loss, as the case may be. The amount of any increase or reduction
hereunder shall be adjusted to reflect any final determination (which
shall include the execution of Form 870-AD or successor form) with
respect to the indemnified party's liability for Taxes and payments
between Seller and Buyer to reflect such adjustment shall be made if
necessary. Any indemnity payment under this Agreement shall be treated
as an adjustment to the Purchase Price for Tax purposes, unless a final
determination (which shall include the execution of a Form 870-AD or
successor form) with respect to the indemnified party or any of its
affiliates causes any such payment not to be treated as an adjustment to
the Purchase Price for United States Federal income Tax purposes.
(e) Termination of Indemnification. The obligations to indemnify
and hold harmless a party hereto (i) pursuant to Section 12(a), shall
terminate at the time the applicable statutes of limitations with
respect to the Tax liabilities in question expire (giving
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effect to any extension thereof), (ii) pursuant to Sections 12(b)(i) and
12(c)(i), shall terminate when the applicable representation or warranty
terminates pursuant to Section 17 and (iii) pursuant to the other
clauses of Sections 12(b) and 12(c) shall not terminate; provided,
however, that as to clauses (i) and (ii) above such obligations to
indemnify and hold harmless shall not terminate with respect to any item
as to which the person to be indemnified or the related party thereto
shall have, before the expiration of the applicable period, previously
made a claim by delivering a notice of such claim to the indemnifying
party. Such notice shall (A) be signed by a proper representative of the
indemnified party, (B) contain a description of the claim, (C) specify
the amount of such claim and (D) state that, in the opinion of the
signer thereof, such notice of claim is valid under the terms of Section
12 and is being given by the indemnified party in good faith.
(f) Procedures Relating to Indemnification (other than under
Section 12(a)). In order for a party (the "indemnified party") to be
entitled to any indemnification provided for under this Agreement (other
than under Section 12(a)) in respect of, arising out of or involving a
claim or demand made by any person against the indemnified party (a
"Third Party Claim"), such indemnified party must notify the
indemnifying party in writing of the Third Party Claim within 10
business days after receipt by such indemnified party of written notice
of the Third Party Claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder
except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure (except that the indemnifying
party shall not be liable for any expenses incurred during the period in
which the indemnified party failed to give such notice). Such notice
shall (i) be signed by a proper representative of the indemnified party,
(ii) contain a description of the claim, (iii) specify the amount of
such claim and (iv) state that, in the opinion of the signer thereof,
such notice of claim is valid under the terms of Section 12 and is being
given by the indemnified party in good faith. Thereafter, the
indemnified party shall deliver to the indemnifying party, within five
business days after the indemnified party's receipt thereof, copies of
all notices and documents (including court papers) received by the
indemnified party relating to the Third Party Claim.
If a Third Party Claim is made against an indemnified party, the
indemnifying party shall be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party; provided that such counsel is not reasonably objected to by
the indemnified party. Should the indemnifying party so elect to assume the
defense of a Third Party Claim, the indemnifying party shall not be liable to
the indemnified party for legal expenses subsequently incurred by the
indemnified party in connection with the defense thereof. If the indemnifying
party assumes such defense, the indemnified party shall have the right to
participate in the defense thereof and to employ counsel at its own expense,
separate from the counsel employed by the indemnifying party, it being
understood that the indemnifying party shall control such defense. The
indemnifying party shall be liable for the fees and expenses of counsel employed
by the indemnified party for any period during which the indemnifying party has
failed to assume the defense thereof (other than during the period prior to the
time the indemnified party shall have given notice of the Third Party Claim as
provided above).
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If the indemnifying party so elects to assume the defense of any
Third Party Claim, all of the indemnified parties shall cooperate with the
indemnifying party in the defense or prosecution thereof. Such cooperation shall
include the retention and (upon the indemnifying party's request) the provision
to the indemnifying party of records and information which are reasonably
relevant to such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder. Whether or not the indemnifying party shall have
assumed the defense of a Third Party Claim, the indemnified party shall not
admit any liability with respect to, or settle, compromise or discharge, such
Third Party Claim without the indemnifying party's prior written consent (which
consent shall not be unreasonably withheld). If the indemnifying party shall
have assumed the defense of a Third Party Claim, the indemnified party shall
agree to any settlement, compromise or discharge of a Third Party Claim which
the indemnifying party may recommend and which by its terms obligates the
indemnifying party to pay the full amount of the liability in connection with
such Third Party Claim, which releases the indemnified party completely in
connection with such Third Party Claim.
The indemnification required by Section 12(b) and 12(c) shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or loss, liability,
claim, damage or expense is incurred. All claims under Section 12(b) or 12(c)
other than Third Party Claims shall be governed by Section 12(g). All Tax Claims
(as defined in Section 12(h)) shall be governed by Section 12(h).
(g) Other Claims. In the event any indemnified party should have
a claim against any indemnifying party under Section 12(b) or 12(c) that
does not involve a Third Party Claim being asserted against or sought to
be collected from such indemnified party, the indemnified party shall
deliver notice of such claim with reasonable promptness to the
indemnifying party. The failure by any indemnified party so to notify
the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to such indemnified party under Section
12(b) or 12(c), except to the extent that the indemnifying party
demonstrates that it has been materially prejudiced by such failure. If
the indemnifying party does not notify the indemnified party within 30
calendar days following its receipt of such notice that the indemnifying
party disputes its liability to the indemnified party under Section
12(b) or 12(c), such claim specified by the indemnified party in such
notice shall be conclusively deemed a liability of the indemnifying
party under Section 12(b) or 12(c) and the indemnifying party shall pay
the amount of such liability to the indemnified party on demand or, in
the case of any notice in which the amount of the claim (or any portion
thereof) is estimated, on such later date when the amount of such claim
(or such portion thereof) becomes finally determined. If the
indemnifying party has timely disputed its liability with respect to
such claim, as provided above, the indemnifying party and the
indemnified party shall proceed in good faith to negotiate a resolution
of such dispute.
(h) Procedures Relating to Indemnification of Tax Claims. If a
claim shall be made by any taxing authority, which, if successful, might
result in an indemnity payment to Buyer, one of its affiliates or any of
their respective officers, directors, employees, stockholders, agents or
representatives pursuant to Section 12(a), Buyer shall notify Seller in
writing of such claim (a "Tax Claim"). If notice of a Tax Claim is not
given to Seller
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within a sufficient period of time to allow Seller to effectively
contest such Tax Claim, or in reasonable detail to apprise Seller of the
nature of the Tax Claim, in each case taking into account the facts and
circumstances with respect to such Tax Claim, Seller shall not be liable
to Buyer, any of its affiliates or any of their respective officers,
directors, employees, stockholders, agents or representatives to the
extent that Seller's position is actually prejudiced as a result
thereof.
With respect to any Tax Claim (other than a Tax Claim relating
solely to Taxes of any Company or Subsidiary for a Straddle Period), Seller
shall control all proceedings taken in connection with such Tax Claim (including
selection of counsel) and, without limiting the foregoing, may in its sole
discretion pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with any taxing authority with respect thereto, and
may, in its sole discretion, either pay the Tax claimed and sue for a refund
where applicable law permits such refund suits or contest the Tax Claim in any
permissible manner. Seller and Buyer shall jointly control all proceedings taken
in connection with any Tax Claim relating solely to Taxes of any Company or
Subsidiary for a Straddle Period.
Buyer, each of the Companies and the Subsidiaries and each of
their respective affiliates shall cooperate with Seller in contesting any Tax
Claim, which cooperation shall include, without limitation, the retention and
(upon Seller's request) the provision to Seller of records and information which
are reasonably relevant to such Tax Claim, and making employees available on a
mutually convenient basis to provide additional information or explanation of
any material provided hereunder or to testify at proceedings relating to such
Tax Claim.
In no case shall Buyer, any of the Companies or the Subsidiaries
or any of their respective officers, directors, employees, stockholders, agents
or representatives settle or otherwise compromise any Tax Claim without Seller's
prior written consent. Neither party shall settle a Tax Claim relating solely to
Taxes of any Company or Subsidiary for a Straddle Period without the other
party's prior written consent.
(i) Mitigation. Buyer and Seller shall cooperate with each other
with respect to resolving any claim or liability with respect to which
one party is obligated to indemnify the other party hereunder, including
by making commercially reasonably efforts to mitigate or resolve any
such claim or liability; provided that such party shall not be required
to make such efforts if they would be detrimental in any material
respect to such party. In the event that Buyer or Seller shall fail to
make such commercially reasonably efforts to mitigate or resolve any
claim or liability, then (unless the proviso to the foregoing covenant
shall be applicable) notwithstanding anything else to the contrary
contained herein, the other party shall not be required to indemnify any
person for any loss, liability, claim, damage or expense that could
reasonably be expected to have been avoided if Buyer or Seller, as the
case may be, had made such efforts.
13. Tax Matters. (a) Buyer shall (i) timely make an election
under Section 338(g) of the Code (and any comparable election under state or
local Tax law) with respect to each of the Companies and the Subsidiaries, (ii)
join Seller in timely making an election under Section
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338(h)(10) of the Code (and any comparable election under state or local Tax
law) with respect thereto and (iii) cooperate with Seller in the completion and
timely filing of such elections in accordance with the provisions of Temporary
Regulation 'SS' 1.338(h)(10) (or any comparable provisions of state or local Tax
law) or any successor provision. Such cooperation shall include, but not be
limited to, (x) the determination of the fair market value of the assets of the
Companies and each Subsidiary, and the calculation of the adjusted gross-up
basis, within the meaning of Treasury Regulation Section 1.338(b)-i; (y) the
allocation the deemed purchase price among the acquired assets in accordance
with all applicable rules and regulations under Section 338 of the Code; and (z)
the preparation and timely filing of all Tax returns, including all forms or
schedules necessary or appropriate to the Section 338(h)(10) election. No later
than three months following the Closing Date, Buyer shall prepare and deliver to
Seller a schedule (the "Price Allocation Schedule") allocating the modified ADSP
(as such term is defined in Treasury Regulations Section 1.338(h)(10)-1.) among
the assets of the Companies and the Subsidiaries in accordance with Treasury
regulations promulgated under Section 338(h)(10). Any objection by Seller to the
Price Allocation Schedule prepared by Buyer shall be raised within 60 business
days after receipt by Seller of the Price Allocation Schedule. If Buyer and
Seller are unable to resolve any differences within 60 business days thereafter,
such dispute shall be resolved by the Accounting Firm (as defined in Section
3(c) of this Agreement) and, if necessary, a revised Price Allocation Schedule
consistent with the determination made by the Accounting Firm shall be prepared
by Buyer as soon as possible thereafter. In all events, the Price Allocation
Schedule shall be finally prepared and agreed upon prior to eight months from
the Closing Date. Buyer and Seller shall each pay one-half of the costs, fees
and expenses of the Accounting Firm. The Price Allocation Schedule shall be
binding (except to the extent items reflected thereon are adjusted pursuant to
an examination by the Internal Revenue Service) on the parties hereto, and
Seller and Buyer agree to act in accordance with such Schedule in the
preparation, filing and audit of any Tax return.
(b) For any taxable period of any of the Companies or the
Subsidiaries that includes (but does not end on) the Closing Date, Buyer
shall timely prepare and file with the appropriate authorities all Tax
returns, reports and forms required to be filed and shall pay all Taxes
due with respect to such returns, reports and forms; provided that
Seller shall reimburse Buyer (in accordance with the procedures set
forth in Section 12(a)) for any amount owed by Seller pursuant to
Section 12(a) with respect to the taxable periods covered by such
returns, reports or forms. For any taxable period of any of the
Companies or the Subsidiaries that ends on or before the Closing Date,
Seller shall timely prepare and file with the appropriate authorities
all Tax returns, reports and forms required to be filed ("Seller
Returns"), and shall pay all Taxes due with respect to such returns,
reports and forms. If a Seller Return is required to be filed by a
Company or a Subsidiary, Seller shall deliver such return to Buyer
within 10 days of its due date and Buyer shall cause such return to be
timely filed; provided, however, that Buyer shall not assume any
liability with respect to the content of any such Seller Return. Buyer
and Seller agree to cause the Companies and the Subsidiaries to file all
Tax returns, reports and forms for the period including the Closing Date
on the basis that the relevant taxable period ended as of the close of
business on the Closing Date, unless the relevant taxing authority will
not accept a return, report or form filed on that basis.
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(c) Seller, each of the Companies and the Subsidiaries and Buyer
shall reasonably cooperate, and shall cause their respective affiliates,
officers, employees, agents, auditors and representatives reasonably to
cooperate, in preparing and filing all returns, reports and forms
relating to Taxes, including maintaining and making available to each
other all records necessary in connection with Taxes and in resolving
all disputes and audits with respect to all taxable periods relating to
Taxes. Buyer and Seller recognize that Seller and its affiliates will
need access, from time to time, after the Closing Date, to certain
accounting and Tax records and information held by the Companies and the
Subsidiaries to the extent such records and information pertain to
events occurring prior to the Closing Date, and that Buyer, the
Companies and the Subsidiaries may need access, from time to time, after
the Closing Date, to certain accounting and Tax records and information
held by Seller to the extent such records and information pertain to
events occurring prior to the Closing Date; therefore, Buyer agrees, and
agrees to cause each of the Companies and the Subsidiaries, (i) to use
its best efforts to properly retain and maintain such records until such
time as Seller agrees that such retention and maintenance is no longer
necessary, and (ii) to allow Seller and its agents and representatives
(and agents or representatives of any of its affiliates), at times and
dates mutually acceptable to the parties, to inspect, review and make
copies of such records as Seller may deem necessary or appropriate from
time to time, such activities to be conducted during normal business
hours and at Seller's expense; and Seller agrees (i) to use its best
efforts to properly retain and maintain its records until such time as
Buyer agrees that such retention and maintenance is no longer necessary,
and (ii) to allow Buyer, the Companies and the Subsidiaries and their
respective agents and representatives (and agents or representatives of
any of their respective affiliates), at times and dates mutually
acceptable to the parties, to inspect, review and make copies of such
records as Buyer, the Companies or the Subsidiaries may deem necessary
or appropriate from time to time, such activities to be conducted during
normal business hours and at Buyer's expense.
(d) Any refunds or credits of Taxes of any of the Companies or
the Subsidiaries for any taxable period ending on or before the Closing
Date shall be for the account of Seller unless such refunds or credits
are reflected on the Closing Date Balance Sheet. Any refunds or credits
of Taxes of any of the Companies or the Subsidiaries for any taxable
period beginning after the Closing Date shall be for the account of the
Buyer. Any refunds or credits of Taxes of any of the Companies or the
Subsidiaries for any Straddle Period shall be equitably apportioned
between Seller and Buyer. Buyer shall, if Seller so requests and at
Seller's expense, cause any of the Companies or the Subsidiaries to file
for and obtain any refunds or credits to which Seller is entitled under
this Section 13(d). Buyer shall permit Seller to control the prosecution
of any such refund claim and, where deemed appropriate by Seller, shall
cause the each of Companies and the Subsidiaries to authorize by
appropriate powers of attorney such persons as Seller shall designate to
represent such Company or such Subsidiary with respect to such refund
claim. Buyer shall cause each of the Companies and the Subsidiaries to
forward to Seller any such refund within 10 days after the refund is
received (or reimburse Seller for any such credit within 10 days after
the credit is allowed or applied against other Tax liability); provided,
however, that any such amounts payable to Seller shall be (i) net of any
future tax cost to the Buyer, any Company or Subsidiary attributable to
the turnaround of a temporary difference created or changed by the
refund
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claim and such turnaround occurs in any period which begins after the
Closing Date, and (ii) net of any Tax cost or benefit to Buyer, such
Company or such Subsidiary, as the case may be, attributable to the
receipt of such refund and/or the payment of such amounts to Seller.
Seller and Buyer shall treat any payments under the preceding sentence
that Seller shall receive pursuant to this Section 13(d) as an
adjustment to the Purchase Price, unless a final determination (which
shall include the execution of a Form 870-AD or successor form) with
respect to the Buyer or any of its affiliates causes any such payment
not to be treated as an adjustment to the Purchase Price for United
Stated Federal income Tax purposes. Notwithstanding the foregoing, the
control of the prosecution of a claim for refund of Taxes paid pursuant
to a deficiency assessed subsequent to the Closing Date as a result of
an audit shall be governed by the provisions of Section 12(h).
(e) Seller shall be responsible for filing any amended
consolidated, combined or unitary Tax returns for taxable years ending
on or prior to the Closing Date which are required as a result of
examination adjustments made by the Internal Revenue Service or by the
applicable state, local or foreign taxing authorities for such taxable
years as finally determined. For those jurisdictions in which separate
Tax returns are filed by any of the Companies or the Subsidiaries, any
required amended returns resulting from such examination adjustments, as
finally determined, shall be prepared by Seller and furnished to such
Company or such Subsidiary, as the case may be, for approval (which
approval shall not be unreasonably withheld), signature and filing at
least 30 days prior to the due date for filing such returns.
(f) All transfer, documentary, sales, use, registration and other
such Taxes (including all applicable real estate transfer or gains
Taxes) and related fees (including any penalties, interest and additions
to Tax) incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by Buyer, and Seller and Buyer shall
cooperate in timely making all filings, returns, reports and forms as
may be required to comply with the provisions of such Tax laws.
(g) Seller shall deliver to Buyer at the Closing a certificate in
form and substance satisfactory to Buyer, duly executed and
acknowledged, certifying any facts that would exempt the transactions
contemplated hereby from withholding pursuant to the provisions of the
Foreign Investment in Real Property Tax Act.
(h) On the Closing Date, Buyer shall cause each of the Companies
and the Subsidiaries to conduct its business in the ordinary course in
substantially the same manner as presently conducted and on the Closing
Date shall not permit any of the Companies or the Subsidiaries to effect
any extraordinary transactions (other than any such transactions
expressly required by applicable law or by this Agreement) that could
result in Tax liability to any of the Companies or the Subsidiaries in
excess of Tax liability associated with the conduct of its business in
the ordinary course.
(i) Seller shall cause the provisions of any Tax sharing
agreement between Seller and any of its affiliates (other than the
Companies and the Subsidiaries), on the one hand, and
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any of the Companies or the Subsidiaries, on the other hand, to be
terminated on or before the Closing Date.
14. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by Buyer or Seller without the
prior written consent of the other party hereto; provided, however, that
following the Closing, Seller may assign or transfer its rights and obligations
hereunder in connection with any sale or transfer of the stock or substantially
all the assets of Seller to, or the merger or consolidation of Seller with, any
other person; provided further, however, that Buyer may assign its right to
purchase the Shares hereunder to a wholly owned subsidiary of Buyer without the
prior written consent of Seller; and provided further, however, that no
assignment shall limit or affect the assignor's obligations hereunder. Any
attempted assignment in violation of this Section 14 shall be void.
15. No Third-Party Beneficiaries. Except as provided in Section
10(b) and Section 12, this Agreement is for the sole benefit of the parties
hereto and their permitted assigns and nothing herein expressed or implied shall
give or be construed to give to any person, other than the parties hereto and
such assigns, any legal or equitable rights hereunder.
16. Termination.
(a) Anything contained herein to the contrary notwithstanding,
this Agreement may be terminated and the transactions contemplated
hereby abandoned at any time prior to the Closing Date:
(i) by mutual written consent of Seller and Buyer;
(ii) by Seller if any of the conditions set forth in
Section 4(b) shall have become incapable of fulfillment, and
shall not have been waived by Seller;
(iii) by Buyer if any of the conditions set forth in
Section 4(a) shall have become incapable of fulfillment, and
shall not have been waived by Buyer; or
(iv) by either party hereto, if the Closing does not occur
on or prior to December 31, 1997, unless the Closing does not
occur on or prior to such date because of regulatory delays over
which the parties have no control, in which event this Agreement
may be terminated by either party hereto, if the Closing does not
occur on or prior to February 1, 1998; provided, however that for
purposes of this Section 16(a)(iv) no party shall be deemed to
have control over any regulatory delay related to, or be required
to consent to, any condition sought to be imposed by any
Governmental Entity as a condition of regulatory approval of the
transactions contemplated hereby, if, in the sole opinion of the
party subject to such condition, such condition would have a
material adverse effect on such party;
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provided, however, that the party seeking termination pursuant to clause (ii),
(iii) or (iv) is not in breach in any material respect of any of its
representations, warranties, covenants or agreements contained in this
Agreement.
(b) In the event of termination by Seller or Buyer pursuant to
this Section 16, written notice thereof shall forthwith be given to the
other party and the transactions contemplated by this Agreement shall be
terminated, without further action by either party. If the transactions
contemplated by this Agreement are terminated as provided herein:
(i) Buyer shall return all documents and other material
received from Seller, any Company or any Subsidiary relating to
the transactions contemplated hereby, whether so obtained before
or after the execution hereof, to Seller; and
(ii) all confidential information received by Buyer with
respect to the business of the Companies and the Subsidiaries
shall be treated in accordance with the Confidentiality
Agreement, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
(c) If this Agreement is terminated and the transactions
contemplated hereby are abandoned as described in this Section 16, this
Agreement shall become void and of no further force or effect, except
for the provisions of (i) Section 8(a) relating to the obligation of
Buyer to keep confidential certain information and data obtained by it,
(ii) Section 20 relating to certain expenses, (iii) Section 21 relating
to attorney fees and expenses, (iv) Section 9(b) relating to publicity,
(v) Section 27 relating to finder's fees and broker's and (vi) this
Section 16. Nothing in this Section 16 shall be deemed to release either
party from any liability for any breach by such party of the terms and
provisions of this Agreement or to impair the right of either party to
compel specific performance by the other party of its obligations under
this Agreement.
17. Survival of Representations. The representations and
warranties in this Agreement and in any certificate delivered pursuant hereto
(in each case other than the representations and warranties relating to Taxes)
shall survive the Closing solely for purposes of Sections 12(b) and (c) and
shall terminate at the close of business 18 months following the Closing Date;
provided, however, that the representations and warranties contained in Sections
5(c), 5(e) and 5(f) shall survive the Closing without limitation.
Representations and warranties relating to Taxes shall survive until the
applicable statutes of limitations have expired.
18. Effect of Representations, Warranties, Covenants and
Agreements of Seller. The parties hereto agree that the representations,
warranties, covenants and agreements of Seller contained herein or in any
schedule or exhibit hereto are made for purposes of this Agreement only and are
made by Seller solely in conjunction with the execution of this Agreement and
with the closing conditions and indemnification provisions set forth in Section
12 of this Agreement. The parties agree that the representations, warranties,
covenants and agreements in this Agreement shall not provide the basis for any
action or remedy other than as set forth in, or permitted by, this Agreement.
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19. Remedies Exclusive. The parties hereto agree that the sole
and exclusive remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (but not any tort based upon intent to
deceive) committed in connection with the transactions described in, or
contemplated by, this Agreement are those set forth in this Agreement, and that
except for a tort based upon intent to deceive, no claim may be made by any
party hereto for any matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this Agreement
and then only pursuant to the terms of this Agreement.
20. Expenses. Whether or not the transactions contemplated hereby
are consummated, and except as otherwise specifically provided in this
Agreement, all costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
costs or expenses, except that (i) Buyer shall pay (A) up to $10,000 (including
out-of-pocket expenses) to KPMG Peat Marwick for its audit of the Audited
December 31, 1996 GAAP Financial Statements, and (B) 100% of the cost of the
preparation by Milliman & Robertson, Inc. of the Western Indemnity Insurance
Company Analysis of Loss and Loss Adjustment Expense Reserves as of September
30, 1997 and (ii) Seller shall pay 100% of the cost of the preparation by KPMG
Peat Marwick of the Audited September 30, 1997 GAAP Financial Statements and the
Audited September 30, 1997 SAP Financial Statements .
21. Attorney Fees. A party in breach of this Agreement shall, on
demand, indemnify and hold harmless the other party for and against all
reasonable out-of-pocket expenses, including legal fees, incurred by such other
party by reason of the enforcement and protection of its rights under this
Agreement. The payment of such expenses is in addition to any other relief to
which such other party may be entitled.
22. Amendments. No amendment, modification or waiver in respect
of this Agreement shall be effective unless it shall be in writing and signed by
both parties hereto.
23. Notices. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be delivered by
hand or sent by prepaid telex, cable or telecopy or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
shall be deemed given when so delivered by hand, telexed, cabled or telecopied,
or if mailed, three days after mailing (one business day in the case of express
mail or overnight courier service), as follows:
(i) if to Buyer,
Frontier Insurance Group, Inc.
195 Lake Louise Marie Road
Rock Hill, New York 12775-8000
Attention: Peter H. Foley
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with a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attention: Sidney Todres; and
(ii) if to Seller,
The Galtney Group, Inc.
820 Gessner, Suite 1000
Houston, Texas 77024-4259
Attention: C. Garrison Cordell
with a copy to:
Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin
Houston, Texas 77002
Attention: John S. Watson
24. Interpretation; Exhibits and Schedules; Certain Definitions.
(a) The headings contained in this Agreement, in any Exhibit or Schedule hereto
and in the table of contents to this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement.
Any matter set forth in any provision, subprovision, section or subsection of
the Disclosure Schedule hereto shall be deemed set forth for all purposes of the
Disclosure Schedule to the extent relevant. All Exhibits and Schedules annexed
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any capitalized terms used in any
Schedule or Exhibit but not otherwise defined therein, shall have the meaning as
defined in this Agreement.
(b) For all purposes hereof:
(i) "including" means including, without limitation; and
(ii) "person" means any individual, firm, corporation,
partnership, limited liability company, trust, joint venture,
Governmental Entity or other entity.
(c) For all purposes hereof, any reference to the knowledge of,
or actions taken or to be taken by, Western shall be deemed to refer to
the knowledge of, or actions taken or
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to be taken by, ProRisk. ProRisk is the managing general agent of
Western. Western has no employees and, consequently, acts only through
ProRisk.
25. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to the other party.
26. Entire Agreement. This Agreement and the Confidentiality
Agreement contain the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersede all prior
agreements and understandings relating to such subject matter. Neither party
shall be liable or bound to any other party in any manner by any
representations, warranties or covenants relating to such subject matter except
as specifically set forth herein or in the Confidentiality Agreement.
27. Fees. Each party hereto hereby represents and warrants that
(a) the only brokers or finders that have acted for such party in connection
with this Agreement or the transactions contemplated hereby or that may be
entitled to any brokerage fee, finder's fee or commission in respect thereof are
Donaldson, Lufkin & Jenrette with respect to Seller and none with respect to
Buyer and (b) each party shall pay all fees or commissions which may be payable
to the firm so named with respect to such party.
28. Severability. If any provision of this Agreement (or any
portion thereof) or the application of any such provision (or any portion
thereof) to any person or circumstance shall be held invalid, illegal or
unenforceable in any respect by a court of competent jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof (or the remaining portion thereof) or the application of such provision
to any other persons or circumstances.
29. Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
regard to the conflicts of law principles of such State.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
THE GALTNEY GROUP, INC.,
By: /s/ William F. Galtney, Jr.
---------------------------------------
Name: William F. Galtney, Jr.
Title: Chairman
GALTNEY HOLDINGS, INC.,
By: /s/ Richard F. Harris
---------------------------------------
Name: Richard F. Harris
Title: President
HEALTHCARE INSURANCE SERVICES, INC.,
By: /s/ William F. Galtney, Jr.
----------------------------------------
Name: William F. Galtney, Jr.
Title: Chairman
FRONTIER INSURANCE GROUP, INC.,
By: /s/ Peter H. Foley
----------------------------------------
Name: Peter H. Foley
Title: Executive Vice President
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ASSET PURCHASE AGREEMENT
AGREEMENT (the "Agreement") made this 1st day of December, 1997,
by and between MEDICAL PROFESSIONAL LIABILITY AGENCY, LTD., a New York
corporation with offices at Two Depot Plaza, Bedford Hills, New York 10507
("Seller"), FPIC INSURANCE AGENCY, INC., a Florida corporation with offices at
1000 Riverside Avenue, Suite 800, Jacksonville, Florida 32204 ("Buyer") and,
solely for purposes of Sections 5.1, 5.2, 5.3 and 5.4 hereof, FRONTIER INSURANCE
COMPANY, d/b/a FRONTIER INSURANCE COMPANY OF NEW YORK, a New York corporation
with offices at 195 Lake Louise Marie Road, Rock Hill, New York 12775 ("Frontier
Insurance").
R E C I T A L
WHEREAS, Buyer is desirous of purchasing and Seller is desirous
of selling certain of Seller's assets comprising substantially all of Seller's
Florida medical malpractice book of business, excluding coverage for dentists,
psychiatrists and chiropractors (the "Acquired Medical Malpractice Book of
Business"), upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, Buyer and Seller hereby agree as follows:
ARTICLE I
ASSETS BEING SOLD
1.1 Assets Being Sold. Seller hereby sells, conveys, transfers,
assigns and delivers to Buyer and Buyer hereby purchases from Seller the
following assets comprising substantially all of Seller's Florida medical
malpractice book of business, excluding, however, coverage for dentists,
psychiatrists and chiropractors (collectively, the "Acquired Assets"):
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(a) all of Seller's rights to and interest in the
expirations and renewals with respect to the insurance policies issued and
insured by Frontier Insurance covering acts of medical malpractice by Florida
physicians in effect as at December 1, 1997 listed on Schedule 1.1(a) hereto
(the "Renewal Rights"), which Renewal Rights expressly exclude medical
malpractice for dentists, psychiatrists and chiropractors and insurance policies
issued and insured by Seller and/or Frontier Insurance under national programs
or social service programs; and
(b) all informational files relating to the Renewal
Rights.
1.2 Assets Excluded from Sale. Only the Acquired Assets as
described in Section 1.1 are being sold and purchased pursuant to this
Agreement.
1.3 Consideration. In full consideration for the Acquired Assets,
Buyer is delivering to Seller on the date hereof One Hundred Eleven Thousand Six
Hundred Sixty-Three (111,663) shares of Common Stock, par value $0.10 per share,
of FPIC Insurance Group, Inc. ("FPIC"), the parent corporation of Buyer (the
"FPIC Shares").
1.4 Adjustment to Consideration. The consideration paid for the
Acquired Assets is subject to the following cash adjustment:
(a) In the event the total direct written premiums and
assumed premiums received by Buyer as a result of renewals from the Renewal
Rights for the twelve-month period December 1, 1997 through November 30, 1998
(the "Post-Closing Renewals")
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exceed $8,000,000, Buyer shall pay Seller forty percent (40%) of the difference
between the Post-Closing Renewals and $8,000,000.
(b) In the event the Post-Closing Renewals are less than
$8,000,000, Seller shall pay Buyer forty percent (40%) of the difference between
$8,000,000 and the Post-Closing Renewals.
The Post-Closing Renewals shall be calculated by Buyer and
certified as true and correct by Buyer's Senior Vice President and Chief
Financial Officer and independent public auditors (the "Certified Calculation").
In the event payment is due from Buyer to Seller, Buyer shall deliver the
Certified Calculation, together with the required payment by certified or
official bank check payable to the order of Seller, by February 15, 1999, or
such later date as shall be mutually agreed upon by Buyer and Seller. In the
event payment is due from Seller to Buyer, Seller shall deliver payment by
certified or official bank check payable to the order of Buyer, within fifteen
(15) business days following Seller's receipt from Buyer of the Certified
Calculation. Seller acknowledges and agrees that the Post-Closing Renewals shall
be at Florida Physicians Insurance Company, Inc.'s ("Florida Physician's")
rates, on Florida Physician's policy forms and subject to Florida Physician's
underwriting standards consistent with Florida Physician's past practices.
3
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ARTICLE II
REPRESENTATIONS AND
WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer that:
2.1 Organization. Each of Seller and Frontier Insurance is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York with full power and authority to own its properties and
carry on its business as now conducted.
2.2 Authority. The execution and delivery of this Agreement by
each of Seller and Frontier Insurance and the consummation of the transactions
contemplated hereby by Seller and Frontier Insurance have been authorized and
approved by all requisite corporate action of Seller and Frontier Insurance and
this Agreement and all instruments being delivered by Seller and Frontier
Insurance hereunder represent legal, valid and binding obligations of Seller and
Frontier Insurance enforceable against Seller and Frontier Insurance in
accordance with their respective terms.
2.3 No Consent. No consent, order, license, approval or
authorization of, or exemption by, or registration or declaration or filing
with, any governmental authority, bureau or agency, and no consent or approval
of any other person, corporation, partnership, trust, incorporated or
unincorporated association, joint venture, joint stock company, government (or
any agency or political subdivision thereof) or other entity of any kind
("Person"), is required to be obtained or made by Seller or any of Seller's
affiliates in connection with the performance by Seller or Frontier Insurance of
this Agreement or the consummation of the transactions contemplated to be
performed by Seller or Frontier Insurance hereunder.
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2.4 Title to Acquired Assets. Seller has good and marketable
title to the Acquired Assets, free and clear of any adverse claims, mortgages,
liens or other burdens or encumbrances, except the related obligations of Seller
with respect to the contracts being assigned, and the instruments of transfer
being executed and delivered by Seller concurrently with this Agreement are
valid and binding obligations of Seller and are sufficient to transfer to Buyer
all right, title and interest of Seller in and to the Acquired Assets.
2.5 No Breach. The consummation of the transactions contemplated
by this Agreement do not (i) contravene any provision of the Certificate of
Incorporation or By-Laws of Seller; (ii) violate, conflict with or result in the
breach or termination of, or constitute an amendment to, or otherwise give any
Person the right to terminate, or constitute (or with notice or lapse of time or
both would constitute) a default (by way of substitution, novation or otherwise)
under the terms of, any contract, mortgage, lease, bond, indenture, agreement,
franchise or other instrument or obligation relating to the Acquired Assets to
which Seller is a party or by which Seller or any of the Acquired Assets are
bound or affected; (iii) result in the creation of any lien, mortgage, claim,
charge, security interest, encumbrance, restriction or limitation (collectively,
"Liens") upon any of the Acquired Assets pursuant to the terms of any contract,
mortgage, lease, bond, indenture, agreement, franchise or other instrument or
obligation; (iv) violate any judgment, order, injunction, decree or award of any
court, arbitrator, administrative agency or governmental or regulatory body
against, or binding upon, Seller or any of the Acquired Assets; (v) constitute a
violation by Seller of any statute, law, rule or regulation of any jurisdiction
as such statute, law, rule or regulation relates to the Renewal Rights or to any
of the Acquired Assets; or (vi) violate any Permit (as defined in Section 2.7).
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2.6 Compliance with Laws. Neither Seller nor Frontier Insurance
is in violation of any applicable law, rule or regulation, the violation of
which could materially and adversely affect the Acquired Assets.
2.7 Permits. Seller has duly obtained and holds in full force and
effect all consents, authorizations, permits, licenses, orders or approvals of,
and has made all declarations and filings with, all federal, state or local
governmental or regulatory bodies that are material or necessary with respect to
the Acquired Medical Malpractice Book of Business (collectively, the "Permits");
all the Permits were duly obtained and are in full force and effect; no
violations are or have been recorded in respect of any such Permit and no
proceeding is pending or, to the knowledge of Seller, threatened to revoke, deny
or limit any such Permit.
2.8 Actions and Proceedings. There are no claims, actions, suits,
arbitrations, proceedings, investigations or inquiries, whether at law or in
equity and whether or not before any court, private body or group, governmental
department, commission, board, agency or instrumentality (collectively,
"Actions"), pending or, to the knowledge of Seller, threatened against,
involving or affecting the Acquired Assets, whether or not fully or partially
covered by insurance, or which would give rise to any right of indemnification
by any Person with respect to the Acquired Assets, other than any claim, action
or suit related to any policy for which Frontier Insurance is the insurer or
reinsurer; and there are no outstanding orders, writs, injunctions, awards,
sentences or decrees of any court, private body or group, governmental
department, commission, board, agency or instrumentality against, involving or
affecting the Acquired Assets. None of the Actions specified in the preceding
sentence, individually or in the aggregate, will have a material adverse effect
with respect to the Acquired Assets, and there are
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no circumstances, nor any events which have occurred which Seller believes will
result in an Action against or affecting the Acquired Assets.
2.9 No Brokers. Seller has not employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby for which Buyer may be
responsible.
2.10 Policies of Insurance. Seller has no reason to believe that
the policies underlying the Renewal Rights will be terminated before their
stated expiration dates, except in the ordinary course, or will not be renewed
in the ordinary course upon their expiration.
2.11 Examination of Documents, Investment Purposes and Legending
of the Shares. Seller has examined the Annual Report on Form 10-K of FPIC for
the fiscal year ended December 31, 1996, FPIC's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1997 and June 30, 1997, including the financial
statements contained therein, FPIC's Proxy Statement for its 1997 Annual Meeting
of Shareholders and FPIC's 1997 Annual Report to Shareholders, and is acquiring
the FPIC Shares for Seller's own account for investment within the contemplation
of the Securities Act of 1933, as amended (the "Securities Act") and not with a
view to the transfer or resale thereof; Seller has been advised by Seller's
counsel of the legal implications and effect of the foregoing under the
Securities Act and of the circumstances under which the FPIC Shares to be
received by Seller may be disposed of under the Securities Act, including the
possible limited sale thereof pursuant to Rule 144 under the Securities Act; and
Seller consents to the legending of the certificates for the FPIC Shares to be
received with a legend in substantially the following form:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT FOR
THESE SHARES OR AN OPINION OF THE CORPORATION'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that:
3.1 Organization. Buyer is a corporation duly organized, validly
existing and its status is active under the laws of the State of Florida with
full power and authority to own, lease and operate its properties and to carry
on its business as now conducted.
3.2 Authority. The execution and delivery of this Agreement by
Buyer and the consummation of the transactions contemplated hereby by Buyer have
been authorized and approved by all requisite corporate action and this
Agreement and all instruments being delivered by Buyer hereunder represent the
legal, valid and binding agreements of Buyer enforceable against it in
accordance with their respective terms.
3.3 No Breach. The authorization, execution, delivery and
performance of this Agreement by Buyer do not violate any provision of its
articles of incorporation or by-laws or any agreement to which it is a party.
3.4 The FPIC Shares. The FPIC Shares delivered hereby have been
duly authorized and are validly issued, fully paid and non-assessable. The FPIC
Shares are authorized for listing on The Nasdaq Stock Market. No consent,
approval or filing with any
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Person (as defined in Section 2.3) is required in connection with the issuance
of the FPIC Shares, and the issuance of the FPIC Shares does not trigger
preemptive rights with respect to any Person.
3.5 Documents Delivered. Buyer has delivered to Seller FPIC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (the
"1996 Form 10-K"), FPIC's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997 and June 30, 1997, FPIC's Proxy Statement for its 1997 Annual
Meeting of Shareholders and FPIC's 1996 Annual Report to Shareholders
(collectively, the "SEC Documents"). The SEC Documents were true and complete in
all material respects as at their respective dates, did not contain any untrue
statement of a material fact nor omit to state any material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading, and since the
filing of the 1996 Form 10-K, there has not been any material adverse change in
FPIC's financial condition, results of operations or liabilities.
3.6 No Brokers. Buyer has not employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby for which Seller may be
responsible.
ARTICLE IV
DELIVERIES
4.1 Deliveries to Buyer. On the date hereof, Seller is delivering
to Buyer:
(a) A bill of sale conveying, assigning and
transferring to Buyer the Renewal Rights, executed by Seller.
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(b) The opinion of Epstein Becker & Green, P.C.,
special counsel to Seller, or Marvin Tepper, Esq.,
counsel to Seller, as to the matters set forth in
Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7 and 2.8.
4.2 Deliveries to Seller. On the date hereof, Buyer is delivering
to Seller the following:
(a) A stock certificate or certificates evidencing the
FPIC Shares registered in the Frontier Insurance
Group, Inc.
(b) The opinion of LeBouef, Lamb, Greene & MacRae,
L.L.P., counsel to Buyer, as to the matters set
forth in Sections 3.1, 3.2, 3.3 and 3.4.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Reinsurance Election with Respect to Seller's National
programs.
(a) On or before December 31, 1997, Buyer may notify
Seller of the election of FPIC or another affiliate of Buyer (a "Participating
Affiliate") to participate in any one or more of Frontier Insurance's national
medical malpractice insurance programs listed on Schedule 5.1 hereto (the
"National Programs") on either of the following bases:
(i) With respect to any or all of the National Programs, a
Participating Affiliate may elect to enter into a reinsurance
agreement with Frontier Insurance in a form to be mutually agreed
to by the parties hereto (a "Reinsurance Agreement"), pursuant to
which Frontier Insurance will
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cede to the Participating Affiliate for a period of three years
from the date of election all or any portion of the Florida
component of the respective National Programs; or
(ii) With respect to any or all of the National Programs,
a Participating Affiliate may elect to enter into a Reinsurance
Agreement with Frontier Insurance pursuant to which Frontier
Insurance will cede to the Participating Affiliate for a period
of three years from the date of election, with respect to each
National Program selected by the Participating Affiliate, that
portion of the National Program which bears the same proportion
to the National Program that the Florida component of the
National Program then bears to the National Program. As an
illustration, if the Florida component of a National Program
constitutes 10% of the entire program at the time of a
Participating Affiliate's election, the Participating Affiliate
may elect to reinsure 10% of the entire program.
(b) For a period of three years from the date of this
Agreement, in the event Seller, Frontier Insurance or any of their respective
affiliates initiates any other national program or programs involving medical
healthcare professional liability, Seller shall give notice thereof to Buyer,
and Buyer shall have 30 days from the receipt of such notice to notify Seller of
the election of a Participating Affiliate to participate in such program or
programs on the same bases provided in paragraph (a) above, and Seller and
Frontier Insurance shall, or shall cause their affiliates to, permit the
Participating Affiliate to so participate.
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5.2 Encouragement of Independent Agents Owning Renewal Rights.
Seller and Frontier Insurance hereby agree to use their reasonable efforts and
to cooperate with Buyer to encourage those independent Florida insurance agents
who own the rights and interests in expirations and renewals on insurance
policies written by Frontier Insurance relating to Seller's Florida medical
malpractice book of business (excluding medical malpractice for dentists,
psychiatrists and chiropractors and insurance issued and insured under national
programs or social service programs) to renew such insurance through Buyer, FPIC
or a Participating Affiliate as insurer. The reasonable efforts and cooperation
of Seller and Frontier Insurance shall include, without limitation, the
preparation and mailing of letters to the relevant policyholders and insurance
agents in a form mutually agreeable to Buyer and Seller.
5.3 Florida Endorsements. Seller and Frontier Insurance hereby
agree to use their best efforts to cause each of the Florida Society of Internal
Medicine and the Florida Dermatological Society to endorse the medical
malpractice insurance programs of Buyer.
5.4 Non-Competition. (a) As a material inducement for Buyer to
enter into this Agreement, Seller and Frontier Insurance agree, until November
30, 2000, not to act as insurer or agent, and to cause their affiliates not to
insure or to act as agent with respect to, any medical professional liability
insurance policies in the State of Florida, excluding, however, medical
professional liability for dentists, psychiatrists and chiropractors and
insurance issued and insured under national programs or social service programs
of Seller, Frontier Insurance or their affiliates and except as permitted in
Section 5.4(b). The activities prohibited by this Section 5.4(a) are hereinafter
referred to as the "Competitive Activities."
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(b) Through November 30, 2000, none of Seller, Frontier
Insurance or their respective affiliates shall establish a start-up entity or
enterprise that engages in Competitive Activities. In the event any of Seller,
Frontier Insurance or any of their respective affiliates acquires an insurance
company prior to November 30, 2000 that engages in Competitive Activities, then
Seller, Frontier Insurance or the respective affiliate, as the case may be,
shall offer Buyer the right, for a period of 30 days following notification
thereof to Buyer, to purchase the rights to and interests in the expirations and
renewals with respect to the insurance policies with renewal dates prior to
November 30, 2000 owned by such insurance company covering such Competitive
Activities on the same terms and conditions that Seller is selling to Buyer the
Renewal Rights pursuant to this Agreement. In the event Buyer accepts the offer
to purchase such expirations and renewals, Seller, Frontier Insurance and/or the
acquired insurance company shall agree to a provision similar to Section 5.2
hereof with respect to expirations and renewals not owned by the acquired
insurance company for insurance with renewal dates prior to November 30, 2000
and Buyer otherwise shall be entitled to expand upon the class of business
covered by such insurance in the State of Florida through November 30, 2000 to
the exclusion of Seller, Frontier Insurance, their respective affiliates and the
acquired insurance company. In the event Buyer declines to accept Seller's offer
to purchase such expirations and renewals and such expirations and renewals
relate to a class of insurance not written by Buyer or its affiliates as of the
date of this Agreement, then Seller, Frontier Insurance, their respective
affiliates and/or the acquired insurance company shall be permitted to renew
such insurance and expand upon the class of business covered by such insurance
in the State of Florida. In the event Buyer declines to accept Seller's offer to
purchase such expirations and renewals and such
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expirations and renewals relate to a class of insurance written by Buyer or its
affiliates as of the date of this Agreement, then Seller, Frontier Insurance,
their respective affiliates and/or the acquired insurance company shall allow
the related insurance to expire in accordance with their terms and shall neither
renew such insurance nor expand upon the class of business covered by such
insurance in the State of Florida. Notwithstanding anything to the contrary
provided in this Section 5.4(b), in no event shall Seller, Frontier Insurance,
their respective affiliates or the acquired insurance company, prior to November
30, 2000, insure or act as agent with respect to any physicians or policies to
which the Renewal Rights pertain.
(c) Notwithstanding the provisions contained in this
Section 5.4, Seller and Frontier Insurance shall be entitled to act as insurer
with respect to policies underlying the Renewal Rights in effect prior to
December 1, 1997 and until their respective expirations.
5.5 Registration Rights.
(a) Definitions. For purposes of this Section 5.5, the
following terms shall have the respective meanings as herein set forth:
"Piggyback Shares" means (i) the shares of Registrable Securities
requested by Seller under Section 5.5(b) to be included in a registration
statement plus (ii) the shares of Common Stock proposed to be included in a
registration statement, if any, by other shareholders of FPIC.
"Registrable Securities" means the FPIC Shares. Registrable
Securities shall cease to be Registrable Securities upon the earliest to occur
of the following: (i) a registration statement with respect to such shares shall
have become effective under the Securities Act of 1933, as amended (the
"Securities Act") and the shares have been sold thereunder, (ii) the
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holding period requirements of rule 144(d) (or any successor provision) under
the Securities Act with respect to such shares shall have been satisfied by
Seller or its designee (to the extent the shares are issued to a designee),
(iii) such shares shall have been otherwise transferred, new certificates for
such shares shall have been delivered by FPIC not bearing a legend restricting
further transfer by virtue of the Securities Act and subsequent disposition of
such shares shall not require registration or qualification under the Securities
Act or any similar state law then in force, or (iv) such shares shall have
ceased to be outstanding. Notwithstanding any other provision of this Agreement,
Seller's rights under this Section 5.5 shall cease at such time as there are no
Registrable Securities.
(b) Notice and Registration Rights. If FPIC at any time
determines to register any of its Common Stock on Form S-3, Form S-2 or Form S-1
for sale for cash for its own account (other than an offering solely of Common
Stock under Rule 415 under the Securities Act or any successor to Rule 415 under
the Securities Act or any successor to Rule 415), or is registering shares of
its Common Stock on Forms S-3, S-2 or S-1 for sale by shareholders of FPIC,
Buyer will give written notice by registered mail to Seller of FPIC's intention
to so register, at least 15 days prior to the anticipated filing date. Upon the
written request of Seller made within 10 days after the mailing of any such
notice (which request shall specify the number of Registrable Securities
intended to be sold) Buyer will cause all Registrable Securities, for which
registration has been requested, to be included in the registration statement
proposed to be filed by FPIC; provided, however, that if such registration shall
be in connection with an underwritten public offering and if the managing
underwriter shall advise FPIC that in the opinion of such managing underwriter
the inclusion of all Piggyback Shares in the proposed
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underwriting would materially interfere with the successful marketing of the
shares of Common Stock proposed to be sold by FPIC, then the number of Piggyback
Shares to be included therein shall be reduced pro rata (subject to any
presently existing rights of others) among the respective holders thereof as
advised by such managing underwriter in order to prevent such interference.
(c) Rights to Terminate Registration. Notwithstanding
anything to the contrary in this Section 5.5, FPIC shall have the right to
discontinue any registration under this Section 5.5 at any time prior to the
effective date of such registration.
(d) Implementation of Registration Rights. In the event
the distribution of Common Stock of FPIC covered by a Registration Statement
pursuant to this Section 5.5 is to be underwritten, each of FPIC and Seller
shall enter into an underwriting agreement containing customary provisions in
connection therewith with the managing underwriters approved by FPIC in its sole
discretion, and FPIC and Seller shall complete and/or execute all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents as may be reasonable or necessary in connection with such
underwriting agreement.
(e) Registration Expenses.
(i) All expenses incident to the performance of or
compliance with this Section 5.5 by Buyer or FPIC, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or Blue Sky laws, printing expenses, messenger and delivery
expenses, fees and disbursements of counsel and independent public accountants
for Buyer or FPIC (including the expense of any audit and/or "comfort" letter)
and other persons retained by Buyer or FPIC, and fees and disbursements of
underwriters (excluding
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underwriting commissions and discounts related to Seller's Registrable
Securities), shall be borne by Buyer or FPIC.
(ii) All expenses incident to Seller's performance
under this Section 5.5, including without limitation, all fees and disbursements
of counsel for Seller and all independent public accountants and other persons
retained by Seller, all underwriting commissions and discounts related to any
Seller's Registrable Securities included in any such underwritten public
offering and brokerage commissions, if any, shall be borne by Seller.
5.6 Schedule of Florida Medical Malpractice Claims. On or before
December 5, 1997, Buyer shall deliver to Seller a schedule setting forth by
report year a history of claims and premium payments relating to all Florida
medical malpractice insurance policies issued or insured by Seller or Frontier
Insurance during the past three years.
ARTICLE VI
SURVIVAL
6.1 Survival. All representations and warranties made in this
Agreement shall survive for a period of two years after the date hereof, except,
however, that (i) claims based on fraud or willful misrepresentation may be
asserted at any time within one year after the party learns of such fraud or
willful misrepresentation and (ii) any representation or warranty in respect of
which indemnity may be sought under Article 7 that would otherwise terminate two
years after the date hereof shall survive the second anniversary of the date
hereof if notice, given in good faith, of the specific inaccuracy or breach
thereof giving rise to such indemnity shall have been given to the party against
whom such indemnity may be sought prior to the second
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anniversary of the date hereof. In addition, the agreements contained in Section
1.4 and Article V shall survive the date hereof without limitation.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification.
(a) Seller hereby agrees to indemnify, defend and hold
harmless Buyer, FPIC and their officers, directors, employees and agents from
and against all losses, fines, civil penalties, judgments, claims, damages or
expenses (including reasonable attorneys' fees) of every kind imposed upon,
incurred or paid by any of them by reason of the breach by Seller of (i) any
representation and warranty made by Seller in this Agreement, or (ii) any
agreement of Seller set forth in Section 1.4 or of Seller or Frontier Insurance
set forth in Article V hereof.
(b) Buyer hereby agrees to indemnify, defend and hold
harmless Seller, Frontier Insurance and their officers, directors, employees and
agents from and against all losses, fines, civil penalties, judgments, claims,
damages or expenses (including reasonable attorneys' fees) of every kind imposed
upon, incurred or paid by any of them by reason of (i) the breach by Buyer of
any representation and warranty made by it in this Agreement, (ii) any claims
made against Seller or Frontier Insurance relating to the Renewal Rights other
than for matters in existence prior to December 1, 1997 or for losses under the
policies underlying the Renewal Rights or arising out of the conduct of the
Florida medical malpractice book of business being acquired by Buyer on and
after December 1, 1997, or (iii) the breach by Buyer of the agreement of Buyer
set forth in Section 1.4 hereof or Article V hereof.
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(c) Each party hereto shall promptly notify the other
party in writing of any claim made on such party by any third party in respect
of a liability, obligation or other matter which is the subject of the foregoing
indemnity agreement, and the party obligated hereunder to indemnify the party
giving such notice shall have the right to compromise or defend any such claim
through counsel of its choosing; provided, however, that any such compromise or
defense of a claim by a party shall require the consent of the other party,
which consent shall not be unreasonably withheld.
(d) Claims for indemnification under this Article VII must
be asserted prior to the second anniversary of the date hereof except as
otherwise provided in clauses (i) and (ii) of Section 6.1 and in the last
sentence of Section 6.1.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1 Amendment and Modification. This Agreement may be amended,
modified and supplemented only by a writing signed by Buyer and Seller.
8.2 Waiver of Compliance. Any failure of Buyer or Seller to
comply with any obligation, covenant, agreement or condition herein contained
may be expressly waived, in writing only, by (i) Buyer in the case of any
failure of Seller or (ii) Seller, in the case of any failure of Buyer. Such
waiver shall be effective only in the specific instance and for the specific
purpose for which made or given.
8.3 Expenses. Each party will pay its own expenses incurred in
connection with this Agreement or any transaction contemplated by this
Agreement. The foregoing shall
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not be construed as limiting any other rights which any party may have as a
result of misrepresentation of or breach by any other party.
8.4 Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered by hand or when mailed by
certified or registered mail (return receipt requested), postage prepaid, as
follows:
A. If to Seller:
Medical Professional Liability Agency, Ltd.
Two Depot Plaza
Bedford Hills, New York 10507
Attn: Thomas J. Dietz, President
with a copy to:
Frontier Insurance Company
195 Lake Louise Marie Road
Rock Hill, New York 12775
Attn: Mr. Walter A. Rhulen, President
or to such other person or place as Seller shall designate by notice in the
manner provided in this Section 8.4;
B. If to Buyer:
FPIC Insurance Agency, Inc.
1000 Riverside Avenue, Suite 800
Jacksonville, Florida 32204
Attn: Mr. William R. Russell
President and Chief Executive Officer
or to such other person as Buyer shall designate by notice in the manner
provided in this Section 8.4.
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8.5 Assignment. This Agreement shall be binding upon and inure to
the benefit of Buyer and Seller and their respective successors and assigns, but
neither this Agreement nor any of the rights, interests and obligations
hereunder shall be assigned by Buyer or Seller without the prior written consent
of the other party.
8.6 Third Parties. This Agreement is not intended to and shall
not be construed to give any person other than the parties hereto (and their
affiliates as provided herein) any interest or rights (including, without
limitation, any third party beneficiary rights) with respect to or in connection
with any agreement or provision contained herein or contemplated hereby.
8.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Florida, without regard to
principles of conflicts of laws; provided, however, that the transfer of title
to the Acquired Assets from Seller to Buyer shall be governed by and construed
in accordance with the laws of the State of New York.
8.8 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
8.9 Headings. The headings of the sections, schedules and
articles of this Agreement are inserted for the sake of convenience only and
shall not constitute a part hereof.
8.10 Entire Agreement. This Agreement, including the schedules,
contains the entire understanding of the parties in respect of the subject
matter contained herein and therein and there are no other terms or conditions,
representations or warranties, written or oral, express or implied, except as
set forth herein.
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8.11 Consent to Jurisdiction; Service of Process.
(a) Buyer and Seller hereby irrevocably submit to the
jurisdiction of the courts of the State of New York or the State of Florida over
any dispute arising out of this Agreement and each irrevocably agrees that all
claims in respect of such dispute or proceeding shall be heard and determined in
such courts. Buyer and Seller hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may have to the laying of
venue of any such dispute brought in such court or any defense of inconvenient
forum for the maintenance of such dispute.
(b) Each of the parties hereto hereby consents to process
being served by any party to this Agreement in any suit, action or proceeding of
the nature specified in subsection (a) above by delivering it in the manner
specified by the provisions of Section 8.4 of this Agreement.
8.12 Further Assurances. Seller and Buyer agree to take such
additional actions and to execute and deliver such additional documents,
instruments or certificates as Buyer or Seller may reasonably request from time
to time in order to effect the transactions contemplated by this Agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly as of the day and year first above written.
MEDICAL PROFESSIONAL LIABILITY
AGENCY, LTD.
By: /s/ Thomas J. Dietz
____________________________________
Thomas J. Dietz, President
FPIC INSURANCE AGENCY, INC.
By: /s/ William R. Russell
____________________________________
Name: William R. Russell
Title: President and
Chief Executive Officer
FOR PURPOSES OF SECTIONS 5.1, 5.2,
5.3 AND 5.4 ONLY:
FRONTIER INSURANCE COMPANY
d/b/a FRONTIER INSURANCE
COMPANY OF NEW YORK
By: /s/ Thomas J. Dietz
____________________________________
Thomas J. Dietz, Vice President
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