<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT JUNE 29, 1999
(DATE OF EARLIEST EVENT REPORTED)
THE CENTRIS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 001-120996 33-0097221
(State or other jurisdiction of (Commission File Number) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
650 TOWN CENTER DRIVE, SUITE 1600
COSTA MESA, CA 92626
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 714/549-1600
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 29, 1999, The Centris Group, Inc. ("Centris"), completed the sale of
100% of the issued and outstanding stock of USF RE INSURANCE COMPANY ("USF
RE") to Folksamerica Holding Company, Inc. ("Folksamerica"), a New York
insurance holding company.
The transaction was consummated pursuant to a Stock Purchase Agreement dated
as of March 31, 1999 which provided, inter alia, that Centris receive
$71,750,000 in cash and $20,750,000 in the form of a five year interest
bearing note. This note payable to Centris is subject to adjustment downward
based upon adverse development of the USF RE's loss reserves as carried on the
books of USF RE at December 31, 1998. The sale price was determined through
arms-length negotiations and approximates the statutory book value of USF RE.
The USF RE subsidiaries, US Holdings, Inc. and USF Insurance Company, were not
included in the sale to Folksamerica.
An aggregate amount of $47,550,000 of the sale proceeds received by Centris
was used to reduce the principal amount of Centris' outstanding loan ("Credit
Agreement") from Fleet National Bank to $25 million from $72,550,000. In this
connection Centris entered into a Sixth Amendment to its December 1994 Credit
Agreement with Fleet National Bank, pursuant to which Amendment certain terms
and conditions of the Credit Agreement were modified.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
Not applicable.
(b) Pro Forma Financial Information
Pro Forma financial information with respect to the sale of USF RE
INSURANCE COMPANY has previously been filed in the Annual Report on Form
10-K for the period ended December 31, 1998 of The Centris Group, Inc. See
Note 3 to the Consolidated Financial Statements--Discontinued Operations of
the Form 10-K. As prescribed by Article 11 of Regulation S-X, the Company
will reflect the final results of the USF RE sale transaction in its Form
10-Q for the period ended June 30, 1999, which Form 10-Q is scheduled to be
filed with the SEC in August, 1999.
(c) Exhibits
Set forth below is a list of exhibits included as part of this Current
Report on Form 8-K:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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<C> <S>
2.01 Stock Purchase Agreement dated as of March 31, 1999 between The
Centris Group, Inc. and Folksamerica Holding Company, Inc. The Stock
Purchase Agreement as filed herewith includes a list and description
of the Exhibits and Schedules to such Agreement. These Exhibits and
Schedules have been omitted from this Form 8-K pursuant to Item
601(b)(2) of Regulation S-K. The Company agrees to furnish
supplementary copies of any omitted Exhibits and Schedules to the
Commission upon a request for same.
10.01 Sixth Amendment to the Credit Agreement between The Centris Group,
Inc. and Fleet National Bank dated as of June 17, 1999.
</TABLE>
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, The
Centris Group, Inc. has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE CENTRIS GROUP, INC.
Date: July 13, 1999 By: /s/ Charles M. Caporale
------------------------------------
Charles M. Caporale
Senior Vice President,
Chief Financial Officer and
Treasurer
3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
2.01 Stock Purchase Agreement dated as of March 31, 1999 between The
Centris Group, Inc. and Folksamerica Holding Company, Inc.
10.01 Sixth Amendment to the Credit Agreement between The Centris Group,
Inc. and Fleet National Bank dated as of June 17, 1999.
</TABLE>
4
<PAGE>
EXHIBIT 2.01
- --------------------------------------------------------------------------------
_____________________
STOCK PURCHASE AGREEMENT
_____________________
dated as of March 31, 1999
between
THE CENTRIS GROUP, INC.
and
FOLKSAMERICA HOLDING COMPANY, INC.
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
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Page
<S> <C>
ARTICLE I DEFINITIONS.................................................................................. 1
SECTION 1.01. Certain Defined Terms...................................................... 1
ARTICLE II PURCHASE AND SALE OF SHARES.................................................................. 8
SECTION 2.01. Purchase of Shares......................................................... 8
SECTION 2.02. Purchase Price............................................................. 9
SECTION 2.03. Closing.................................................................... 13
SECTION 2.04. Payment of Principal and Interest on the Closing Note...................... 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER................................................. 14
SECTION 3.01. Incorporation and Authority of the Seller.................................. 14
SECTION 3.02. Incorporation and Qualification of the Company............................. 15
SECTION 3.03. Capital Stock of the Company............................................... 15
SECTION 3.04. Subsidiaries............................................................... 16
SECTION 3.05. No Conflict................................................................ 17
SECTION 3.06. Consents and Approvals..................................................... 17
SECTION 3.07. Financial Information...................................................... 18
SECTION 3.08. Absence of Undisclosed Liabilities......................................... 18
SECTION 3.09. Investments................................................................ 19
SECTION 3.10. Certain Events............................................................. 20
SECTION 3.11. Insurance Reserve.......................................................... 22
SECTION 3.12. Judgments, Decrees and Orders.............................................. 22
SECTION 3.13. Litigation................................................................. 23
SECTION 3.14. Compliance with Laws....................................................... 23
SECTION 3.15. Environmental, Health and Safety Compliance................................ 23
</TABLE>
(i)
<PAGE>
<TABLE>
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SECTION 3.16. Licenses and Permits....................................................... 24
SECTION 3.17. Intellectual Property Rights............................................... 25
SECTION 3.18. Property................................................................... 26
SECTION 3.19. Insurance.................................................................. 27
SECTION 3.20. Relationships with Affiliates, Officers, Directors and Interested Parties.. 27
SECTION 3.21. Assumed and Ceded Reinsurance Agreements................................... 27
SECTION 3.22. Other Contracts............................................................ 29
SECTION 3.23. Employee Benefit Matters................................................... 31
SECTION 3.24. Labor Matters.............................................................. 34
SECTION 3.25. Taxes...................................................................... 34
SECTION 3.26. Agents..................................................................... 37
SECTION 3.27. Accounts with Financial Institutions....................................... 37
SECTION 3.28. Minute Books; Stock Books; Officers and Directors.......................... 38
SECTION 3.29. Continuing Business Relationships.......................................... 38
SECTION 3.30. Year 2000.................................................................. 38
SECTION 3.31. Brokers.................................................................... 38
SECTION 3.32. Disclosure................................................................. 38
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............................................. 39
SECTION 4.01. Incorporation and Authority of the Purchase................................ 39
SECTION 4.02. No Conflict................................................................ 39
SECTION 4.03. Absence of Litigation...................................................... 40
SECTION 4.04. Consents and Approvals..................................................... 40
SECTION 4.05. Investment Purpose......................................................... 40
SECTION 4.06. Brokers.................................................................... 40
ARTICLE V ADDITIONAL AGREEMENTS........................................................................ 41
SECTION 5.01. Conduct of Business Prior to the Closing................................... 41
SECTION 5.02. Access to Information...................................................... 45
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
SECTION 5.03. Books and Records.......................................................... 45
SECTION 5.04. Confidentiality............................................................ 46
SECTION 5.05. Regulatory and Other Authorizations; Consents.............................. 46
SECTION 5.06. No Solicitation of Employees............................................... 48
SECTION 5.07. Use of Name................................................................ 48
SECTION 5.08. No Solicitation of Offers, Etc............................................. 49
SECTION 5.09. Fees and Expenses.......................................................... 51
SECTION 5.10. Investment Portfolio....................................................... 51
SECTION 5.11. Notice of Certain Matters.................................................. 51
SECTION 5.12. Interim Financial Statements............................................... 52
SECTION 5.13. Affiliate Agreements; Intercompany Accounts................................ 53
SECTION 5.14. Divestment of Subsidiaries; Release of Pledge.............................. 54
SECTION 5.15. Seller Obligations......................................................... 55
SECTION 5.16. Further Action............................................................. 55
SECTION 5.17. Leases..................................................................... 55
SECTION 5.18. Medical Aggregate Stop Loss Coverage....................................... 55
SECTION 5.19. Investment Portfolio....................................................... 56
ARTICLE VI EMPLOYEE MATTERS............................................................................. 56
SECTION 6.01. Purchaser.................................................................. 56
SECTION 6.02. Seller..................................................................... 57
SECTION 6.03. Administration of Payroll and Other Payments............................... 57
SECTION 6.04. Indemnity.................................................................. 58
SECTION 6.05. Reimbursement For Bonuses and Severance Payments........................... 58
ARTICLE VII TAX MATTERS.................................................................................. 59
SECTION 7.01. Indemnity.................................................................. 59
SECTION 7.02. Returns and Payments....................................................... 60
SECTION 7.03. Refunds.................................................................... 61
</TABLE>
(iii)
<PAGE>
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<S> <C>
SECTION 7.04. Contests................................................................... 62
SECTION 7.05. Certain Audit Adjustments.................................................. 63
SECTION 7.06. Cooperation and Exchange of Information.................................... 64
SECTION 7.07. Conveyance Taxes........................................................... 65
SECTION 7.08. FIRPTA Certificate......................................................... 65
SECTION 7.09. Tax Sharing Agreement...................................................... 65
SECTION 7.10. Miscellaneous.............................................................. 65
ARTICLE VIII CONDITIONS TO CLOSING....................................................................... 66
SECTION 8.01. Conditions to Obligations of the Seller.................................... 66
SECTION 8.02. Conditions to Obligations of the Purchaser................................. 68
ARTICLE IX INDEMNIFICATION............................................................................. 71
SECTION 9.01. Survival................................................................... 71
SECTION 9.02. Indemnification by the Purchaser........................................... 71
SECTION 9.03. Indemnification by the Seller.............................................. 74
SECTION 9.04. Other Provisions Relating to Indemnification............................... 76
ARTICLE X TERMINATION, AMENDMENT AND WAIVER........................................................... 77
SECTION 10.01. Termination............................................................... 77
SECTION 10.02. Effect of Termination..................................................... 78
SECTION 10.03. Waiver.................................................................... 78
ARTICLE XI GENERAL PROVISIONS.......................................................................... 78
SECTION 11.01. Notices................................................................... 78
SECTION 11.02. Public Announcement....................................................... 79
SECTION 11.03. Headings.................................................................. 79
</TABLE>
(iv)
<PAGE>
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<S> <C>
SECTION 11.04. Severability.............................................................. 79
SECTION 11.05. Entire Agreement.......................................................... 80
SECTION 11.06. Assignment................................................................ 80
SECTION 11.07. No Third-Party Beneficiaries.............................................. 80
SECTION 11.08. Amendment; Waiver......................................................... 80
SECTION 11.09. Governing Law............................................................. 80
SECTION 11.10. Counterparts.............................................................. 80
</TABLE>
EXHIBITS TO STOCK PURCHASE AGREEMENT
A Reference Financial Statement
B Terms of Medical Aggregate Stop Loss Treaty
(v)
<PAGE>
LIST OF SCHEDULES TO STOCK PURCHASE AGREEMENT
Schedule Section 3.02 - Incorporation and Qualification of the Company
Schedule Section 3.03 - Capital Stock of the Company
Schedule Section 3.04 - Subsidiaries
Schedule Section 3.04(c) - Assets or Properties Used in Connection with the
Business of the Company
Schedule Section 3.05(a) - Material Defaults Under Indentures, Agreements or
Instruments
Schedule Section 3.06 - Consents and Approvals
Schedule Section 3.07 - Financial Information
Schedule Section 3.08 - Absence of Undisclosed Liabilities
Schedule Section 3.09 - Investments
Schedule Section 3.10 - Certain Events
Schedule Section 3.13 - Litigation
Schedule Section 3.15 - Environmental Health and Safety Compliance
Schedule Section 3.16 - Licenses and Permits
Schedule Section 3.17 - Intellectual Property Rights
Schedule Section 3.18(d) - Equipment, Fixtures and other properties owned,
leased or used by the Company
Schedule Section 3.19 - Insurance
Schedule Section 3.20 - Relationship with Affiliates, Officers, Directors and
Interested Parties
Schedule Section 3.21(b) - Assumed Reinsurance Agreements Effective Between
December 31, 1987 and January 1, 1999, with
Attachments 1 through 4
Schedule Section 3.21(c) - Ceded Reinsurance Agreements with Attachments 1 and 2
(vi)
<PAGE>
Schedule Section 3.22 - Other Contracts
Schedule Section 3.23(a) - Employee Benefit Matters
Schedule Section 3.23(i) - Additional Plans
Schedule Section 3.23(k) - Employee Benefit Matters
Schedule Section 3.23(l) - Employee Benefit Matters
Schedule Section 3.23(n) - Certain Plans
Schedule Section 3.23(o) - Certain Payments
Schedule Section 3.24 - Labor Matters
Schedule Section 3.25 - Taxes
Schedule Section 3.25(d) - Closed Taxable Years
Schedule Section 3.25(e) - Extension of Tax Periods
Schedule Section 3.25(g) - Consolidated Tax Returns
Schedule Section 3.25(r) - Tax Jurisdictions
Schedule Section 3.26 - Agents
Schedule Section 3.27 - Accounts with Financial Institutions
Schedule Section 3.28 - Officers and Directors of the Company
Schedule Section 3.29 - Continuing Business Relationships
Schedule Section 3.30 - Year 2000
Schedule Section 5.01(a) - Conduct Of Business Other Than In The Ordinary Course
and Consistent with Prior Practice Prior to Closing
Schedule Section 5.13(a) - Intercompany Accounts That Will Not Be Settled In
Full Prior to Closing
Schedule Section 5.13(b) - Affiliate Agreements and Effective Dates of
Termination
Schedule Section 6.01 - Current Employees
Schedule Section 6.05(b) - Severance Payments
Schedule Section 8.01(e) - Third Party Consents
Schedule Section 8.02(e) - Third Party Consents
(vii)
<PAGE>
This STOCK PURCHASE AGREEMENT is made and effective, as of March 31, 1999, by
and between THE CENTRIS GROUP, INC., a Delaware corporation (the "Seller"), and
------
FOLKSAMERICA HOLDING COMPANY, INC., a New York corporation (the "Purchaser").
---------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller owns all of the 50,000 issued and outstanding
shares of common stock, par value $60 per share (the "Shares"), of USF RE
------
Insurance Company, a stock insurance company organized under the laws of the
Commonwealth of Massachusetts (the "Company"); and
-------
WHEREAS, the Seller wishes to sell the Shares to the Purchaser and the
Purchaser wishes to purchase the Shares from the Seller, on the terms and
subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Purchaser and the Seller
hereby agree as follows:
DEFINITIONS
SECTION 1.1. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings:
"Acquisition Agreement" has the meaning specified in Section 5.08(b).
---------------------
"Actuary" has the meaning set forth in Section 2.02(b).
-------
"Adjusted Closing Note Principal" has the meaning specified in Section
-------------------------------
2.04(c).
"Adjusted Purchase Price" has the meaning specified in Section
-----------------------
2.02(a).
"Adjustment" has the meaning specified in Section 7.05.
----------
1
<PAGE>
"Affiliate" with respect to any Person means any other Person directly
---------
or indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of this definition, "control" (or
"controlled", as the context may require) shall have the meaning specified in
Section 1501(a)(2) of the New York Insurance Law, as in effect on the date
hereof.
"Affiliate Agreements" has the meaning specified in Section 5.13(b).
--------------------
"Affiliate Plan" has the meaning specified in Section 3.23(e).
--------------
"Annual Actuarial Report" has the meaning specified in Section 2.02(b)
-----------------------
"Annual Statutory Statements" means the Annual Statement of the
---------------------------
Company, as filed with the Massachusetts Insurance Division, for the years ended
December 31, 1998 (including the amendment described in Section 3.07(a) hereof
when filed), 1997 and 1996, in each case including all exhibits,
interrogatories, notes and schedules thereto and any auditor's report, actuarial
opinion, affirmation or certification filed in connection therewith.
"Arbiter" has the meaning specified in Section 2.02(d).
-------
"Business" means the business of the Company as it is currently
--------
conducted by the Company as of the date hereof and, when applicable, as of the
Closing Date.
"Business Day" means a day of the year on which banks are not required
------------
or authorized to be closed in the City of New York.
"Closing" has the meaning specified in Section 2.03(a).
-------
"Closing Date" has the meaning specified in Section 2.03(a).
------------
"Closing Note" has the meaning specified in Section 2.03(c)(ii).
------------
"Closing Note Rate" has the meaning specified in Section 2.04(a).
-----------------
"Closing Payment" has the meaning specified in Section 2.03(c)(i).
---------------
"COBRA" has the meaning specified in Section 3.23(h).
-----
2
<PAGE>
"Company" means USF Re Insurance Company, a stock insurance company
-------
organized under the laws of the Commonwealth of Massachusetts.
"Company's Accountants" has the meaning specified in Section 3.07(a).
---------------------
"Confidentiality Agreement" has the meaning specified in Section 5.04.
-------------------------
"Contests" has the meaning specified in Section 7.04(b).
--------
"Contract" means all written mortgages, indentures, debentures, notes,
--------
loans, bonds, agreements, contracts, leases, subleases, licenses, franchises,
obligations, instruments or other legally binding commitments, arrangements or
undertakings of any kind (including without limitation all leases and other
agreements referred to in Section 3.18 of the Disclosure Schedule but excluding
Reinsurance Agreements and insurance policies written by the Company) to which
the Company is a party or by which the Company or any of its Properties may be
bound or affected.
"Costa Mesa Occupancy Agreement" has the meaning specified in Section
------------------------------
5.17.
"Credit Agreement" means the reducing, revolving, variable interest
----------------
rate Credit Agreement, dated as of December 20, 1994, between the Seller and
Fleet National Bank, as amended and restated as of December 28, 1998.
"Current Employees" has the meaning specified in Section 6.01(a).
-----------------
"Disclosure Schedule" means the Disclosure Schedule, dated as of the
-------------------
date hereof, delivered to the Purchaser by the Seller.
"Dispute" has the meaning specified in Section 2.02(d).
-------
"Dispute Notice" has the meaning specified in Section 2.02(d).
--------------
"Employees" has the meaning specified in Section 3.23(a) .
---------
"Encumbrances" means any lien, pledge, mortgage, security interest,
------------
assessment, claim, lease, charge, option, right of first refusal, imperfection
of title, easement, transfer restriction under any shareholder or similar
agreement, encumbrance or any other restriction or limitation of any kind
whatsoever.
3
<PAGE>
"Environmental and Safety Requirements" has the meaning specified in
-------------------------------------
Section 3.15(a).
"Environmental Lien" has the meaning specified in Section 3.15(a).
------------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the regulations and interpretations thereunder.
"ERISA Affiliate" has the meaning specified in Section 3.23(d) .
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"First Chicago" means First National Bank of Chicago.
-------------
"Florham Park Occupancy Agreement" has the meaning specified in
--------------------------------
Section 5.17.
"Form A Filing" has the meaning specified in Section 5.05(a).
-------------
"GAAP" means United States generally accepted accounting principles
----
and practices as in effect from time to time consistently applied.
"Governmental Authority" means any federal, state, local or foreign
----------------------
government, political subdivision, legislature, court, agency, department,
bureau, commission or other governmental or regulatory authority, body or
instrumentality, including any insurance or securities regulatory authority.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
-------
1976, as amended, and the rules and regulations thereunder.
"Indemnified Party" has the meanings specified in Sections 9.02(a) and
-----------------
9.03(a), as applicable.
"Initial Closing Note Principal" has the meaning specified in Section
------------------------------
2.03(c)(ii).
"Intellectual Property Right" has the meaning specified in Section
---------------------------
3.17.
"Intercompany Pooling Agreement" means the Intercompany Quota Share
------------------------------
Reinsurance Pooling Agreement, dated January 1, 1993, by and between the Company
and USF Insurance Company.
4
<PAGE>
"Interest Payment Date" has the meaning specified in Section 2.04(a).
---------------------
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended.
"Investment Portfolio" means a list provided by the Seller to the
--------------------
Purchaser setting forth all investments, including, without limitation, stocks,
bonds and limited partnership interests, owned by the Company as of a particular
date, the issuer of the investments, the amount owned and the market value of
the investments as of such date.
"IRS" has the meaning specified in Section 3.23(a).
---
"Massachusetts Insurance Code" means the insurance laws of the
----------------------------
Commonwealth of Massachusetts, including the rules, regulations, bulletins and
interpretations promulgated thereunder.
"Massachusetts Insurance Division" means the Division of Insurance of
--------------------------------
the Commonwealth of Massachusetts.
"Material Adverse Effect" means:
-----------------------
(a) With respect to the Seller or the Company, any change in, or
effect on, the Company or the Business which is, or which is reasonably
likely to be, materially adverse to the Business, operations, assets,
liabilities, results of operations, condition (financial or otherwise),
prospects, insurance licenses or other material permits of the Company, or
which will, or is reasonably likely to, prevent or materially delay the
transactions contemplated by this Agreement; provided, however, that the
-------- -------
following changes shall not constitute a Material Adverse Effect:
(i) failure of any cedent to renew any medical stop loss reinsurance
or retrocessional agreements with the Company;
(ii) departures of Current Employees on or prior to the Closing,
provided such departures are not, in the Purchaser's good faith
--------
judgment, material to the Company's operations or prospects; and
provided, further, that the resignation, termination, departure (or
--------- -------
delivery of notice of such resignation, termination or departure) on
or prior to the Closing of fifty
5
<PAGE>
percent or more of the Current Employees at either of the Company's
Costa Mesa or Florham Park offices shall be deemed material;
(iii) additions to the Company's reserves as of December 31, 1998, in
an aggregate amount not exceeding $15,608,000; and
(iv) reserve changes or loss experience relating to the January 1999
Columbian earthquake not to exceed $3,000,000.
(b) With respect to the Purchaser, any change in, or effect on, the
Purchaser which is reasonably likely to be materially adverse to the
Purchaser's operations, assets, liabilities, results of operations,
condition (financial or otherwise) or prospects, on a consolidated basis,
or which will prevent or materially delay the transactions contemplated by
this Agreement.
"Maturity Date" has the meaning specified in Section 2.04(b).
-------------
"Medical Aggregate Stop Loss Treaty" has the meaning specified in
----------------------------------
Section 5.18.
"Multiemployer Plan" has the meaning specified in Section 3.23(b) .
------------------
"Multiple Employer Plan" has the meaning specified in Section 3.23(b).
----------------------
"Permits" has the meaning specified in Section 3.16.
-------
"Permitted Encumbrance" has the meaning specified in Section 3.18(a).
---------------------
"Person" means any individual, corporation, partnership, limited
------
liability company, firm, joint venture, association, joint stock company, trust,
unincorporated organization, governmental or regulatory authority or other
entity.
"Plan" and "Plans" have the meanings specified in Section 3.23(a) .
---- -----
"Post-Closing Periods" means any taxable period thereof beginning
--------------------
after the Closing Date. If a taxable period begins before the Closing Date and
ends after the Closing Date, then the portion of the taxable period that begins
on the day following the Closing Date shall constitute a Post-Closing Period.
"Pre-Closing Period" means any taxable period or portion thereof that
------------------
is not a Post-Closing Period.
6
<PAGE>
"Property" means real, personal or mixed property, tangible or
--------
intangible, including without limitation any leased real property.
"Provisional Purchase Price" has the meaning specified in Section
--------------------------
2.02(a).
"Purchaser" has the meaning specified in the Preamble.
---------
"Quarterly Statutory Statements" means the Quarterly Statement of the
------------------------------
Condition and Affairs of the Company, as filed with the Massachusetts Insurance
Division, for the quarterly periods ended March 31, June 30 and September 30,
1998.
"Redetermination Date" has the meaning specified in Section 2.02(b).
--------------------
"Reference Date" means December 31, 1998.
--------------
"Reference Financial Statement" means the special purpose
-----------------------------
consolidating balance sheet for the Company as at the Reference Date prepared in
accordance with SAP (including with respect to the Subsidiaries, which are
included on the special purpose balance sheet at an agreed value of
$15,044,265), a copy of which is attached hereto as Exhibit A.
---------
"Reinsurance Agreements" has the meaning specified in Section 3.21(a).
----------------------
"Relevant Group" has the meaning specified in Section 3.25(a).
--------------
"Reserves" means all unearned premium reserves and all reserves for
--------
incurred losses including, without limitation, case reserves, reserves for
incurred but not reported losses and reserves for loss adjustment expenses, both
allocated and unallocated, and also any adjustments to such items on account of
reinsurance receivables, salvage and subrogation, reinsurance retrospective
premiums and reinsurance profit commissions.
"Retained Names and Marks" has the meaning specified in Section 5.07.
------------------------
"Retrocession Arrangement" has the meaning specified in Section
------------------------
3.21(c).
7
<PAGE>
"SAP" means, with respect to a reinsurance or insurance company, the
---
statutory accounting procedures and practices prescribed or permitted from time
to time by the National Association of Insurance Commissioners and the
Massachusetts Insurance Division and applied in a consistent manner throughout
the periods involved.
"Seller" has the meaning specified in the Preamble.
------
"Service Agreement" means the Service Agreement between USBenefits and
-----------------
the Company executed in November, 1994.
"Shares" has the meaning specified in the Recitals.
------
"St. Paul Reserves" has the meaning specified in Section 2.02(g).
-----------------
"Straddle Period" has the meaning specified in Section 7.01(b).
---------------
"Subject Loss Reserves" has the meaning specified in Section 2.02(b).
---------------------
"Subsidiary" means any and all other corporations, limited liability
----------
companies, partnerships, joint ventures, associations and other entities of
which the Company, directly or indirectly (through one or more Subsidiaries or
otherwise), owns or controls more than 10% of the voting securities or other
voting interests.
"Superior Proposal" has the meaning specified in Section 5.08(b).
-----------------
"Takeover Proposal" has the meaning specified in Section 5.08(a).
-----------------
"Tax" or "Taxes" means (i) all taxes, fees, duties and other
--- -----
assessments imposed by the United States or any state, local or foreign
government or political subdivision or taxing authority thereof or therein,
including, without limitation, any income, estimated, premium, profits, windfall
profits, environmental, alternative, minimum, license, import, transfer,
registration, stamp, franchise, sales, use, value added, gross receipts, excise,
utility, property (real or personal), severance, ad valorem, net proceeds, deed,
lease, service, capital, customs, occupation, payroll, wage, workman's
compensation, employment, withholding and social security taxes, including all
interest, penalties and additions to taxes imposed by any taxing authority with
respect thereto, whether disputed or not and (ii) any liability of the Company
for amounts described in (i) as a result of being a member of any affiliated,
consolidated, combined or unitary group on or prior to the Closing Date.
8
<PAGE>
"Tax Return" means any return, report or statement (including any
----------
information returns) required to be filed for purposes of a particular Tax.
"Tax Sharing Agreement" means that certain Tax Payment Allocation
---------------------
Agreement relating to the payment of Taxes relating to any affiliated,
consolidated, combined or unitary group to which the Company and the Sellers are
parties and dated as of January 1, 1994.
"Termination Fee" has the meaning specified in Section 5.09(b).
---------------
"USBenefits" means USBenefits Insurance Services, Inc., a Subsidiary
----------
of the Seller.
"WARN Act" has the meaning specified in Section 3.24(b).
--------
PURCHASE AND SALE OF SHARES
SECTION 1.2. Purchase of Shares. Subject to the terms and
------------------
conditions contained in this Agreement, at the Closing the Seller shall sell,
assign, convey, transfer and deliver to the Purchaser, and the Purchaser shall
purchase from the Seller, the Shares for the consideration specified herein.
SECTION 1.3. Purchase Price.
--------------
(1) The purchase price for the Shares shall be equal to $92,500,000 (the
"Provisional Purchase Price"), which amount shall be periodically redetermined
--------------------------
and adjusted as provided herein (the "Adjusted Purchase Price").
-----------------------
(2) The Provisional Purchase Price will be redetermined, as described in
Section 2.02(c), as of December 31, 2000 and each December 31 thereafter to and
including December 31, 2003 (each such December 31 being a "Redetermination
---------------
Date"), based upon an annual actuarial review of the development (net of
- ----
collectible reinsurance purchased by the Company prior to the Closing) of the
case loss reserves, reserves for incurred but not reported losses and reserves
for allocated loss adjustment expenses reflected in the Reference Financial
Statement, including "reinsurance recoverable on loss and loss adjustment
expense payments"
9
<PAGE>
(as such term is used in the Company's 1998 Annual Statutory Statement) as of
the Reference Date ("the Subject Loss Reserves"). The actuarial reviews shall be
---------------------
performed by Tillinghast-Towers Perrin (the "Actuary") within sixty days of each
-------
such Redetermination Date and the results shall be submitted to the Seller and
Purchaser upon completion in the form of a certified actuarial report (each an
"Annual Actuarial Report"). The fees and expenses of the Actuary shall be borne
-----------------------
equally by the Seller and the Purchaser. Each Annual Actuarial Report shall
consist of an actuarial redetermination, as of each Redetermination Date, of (i)
the Subject Loss Reserves for liabilities of the Company incurred on or before
the Reference Date, (ii) a determination of the amount of collectible
reinsurance with respect to such liabilities, and (iii) a determination of the
losses and loss adjustment expenses paid (net of proceeds collected from
reinsurance purchased by the Company prior to the Closing) by the Company during
the period between the Reference Date and the respective Redetermination Date
with respect to liabilities incurred prior to the Reference Date, which review
shall be conducted by the Actuary (x) using its independent judgment based on
prevailing facts, circumstances and trends, (y) in accordance with generally
accepted actuarial standards and principles, and (z) to the extent not
inconsistent with the foregoing, in a manner and applying a method consistent
with the determination of the Reserves recorded in the Reference Financial
Statement. Each Annual Actuarial Report shall be accompanied by:
(A) a schedule that shows the composition of the Subject Loss
Reserves, net of collectible reinsurance purchased by the
Company prior to the Closing, in respect of losses incurred
by the Company on or before the Reference Date and in
respect of the development of such losses after the
Reference Date, and
(B) a reconciliation of the amounts included in such schedule to
the Reserves included, or to be included, in the annual
statutory statement of the Company (or its successor) filed,
or to be filed, with state regulatory authorities after the
Reference Date.
(3) As of each Redetermination Date, the Adjusted Purchase Price
shall be equal to the Provisional Purchase Price reduced (or increased, as the
case may be) dollar for dollar by the amount by which the following clause (i)
is less (or more, as the case may be) than the following clause (ii) where
clauses (i) and (ii) shall mean, respectively:
(1) the Subject Loss Reserves reflected on the Reference Financial
Statement; and
10
<PAGE>
(2) the sum, as determined by the Actuary in the respective Annual
Actuarial Report (or by the parties or the Arbiter as provided in Section
2.02(d), as the case may be), of (x) the actual loss payments and actual
allocated loss adjustment expense payments made in respect of losses
incurred by the Company on or before the Reference Date, net of reinsurance
collected or collectible reinsurance, and made subsequent to the Reference
Date up to and including the respective Redetermination Date, and (y) the
Subject Loss Reserves, net of collectible reinsurance purchased by the
Company, calculated as of the respective Redetermination Date;
provided, however, that notwithstanding anything to the contrary contained in
- -------- -------
this Article II, the Provisional Purchase Price shall also be reduced dollar for
dollar with respect to any adverse loss development on the Company's medical
stop loss or provider excess business assumed by the Company through December
31, 1998 but only to the extent any such amount is not reinsured and recoverable
under the Medical Aggregate Stop Loss Treaty, and provided further, in no event
-------- -------
shall the Adjusted Purchase Price, redetermined in accordance with this Section
2.02(c), be less than $71,750,000 or more than $92,500,000.
(4) If the Seller or the Purchaser objects to any Annual Actuarial
Report (a "Dispute"), the objecting party shall give the other party written
-------
notice of such Dispute (a "Dispute Notice") within fifteen days after the
--------------
receipt by the objecting party of the respective Annual Actuarial Report (the
"Dispute Period"), setting forth in reasonable detail the elements and amounts
--------------
therein to which it objects and the basis for such objection. If either the
Seller or the Purchaser gives a Dispute Notice, the Seller and the Purchaser
shall, within thirty (30) days after receipt by either party of such Dispute
Notice, attempt to resolve such Dispute and agree in writing upon the final
content of the respective Annual Actuarial Report and upon the Adjusted Purchase
Price. In the event that the Seller and the Purchaser are unable to resolve any
Dispute within such thirty (30) day period, then the Dispute shall immediately
be submitted to Ernst & Young LLP (the "Arbiter") for resolution. Within thirty
-------
(30) days from the date that any such dispute is submitted to the Arbiter, the
Arbiter shall deliver to the Purchaser and the Seller a written report setting
forth (i) the Arbiter's redetermination of the Subject Loss Reserves as of the
Redetermination Date and (ii) the Arbiter's determination of the amount of the
fees and expenses of the Arbiter arising from such Dispute and the appropriate
apportionment thereof among the parties hereto. Such report shall be final and
binding on the parties hereto with respect to the Dispute (but not with respect
to any Subject Loss Reserves reflected in any subsequent Annual Actuarial
Report). If neither the Seller nor the Purchaser gives written notice of a
Dispute within the Dispute Period, such Annual Actuarial Report shall be deemed
to have been accepted in the form in which it was delivered and shall be final
and binding upon the parties with respect to the Dispute in the absence of fraud
or manifest error. The Adjusted Purchase Price and the Adjusted Closing Note
Principal (as defined in Section 2.04(c) hereof) shall be computed based upon
the Annual Actuarial Report or the Arbiter's redetermination of Subject Loss
Reserves as of the Redetermination Date, as the case may be.
11
<PAGE>
(5) For purposes of the calculation set forth in Section 2.02 (c)(ii)
only those payments and reserves that are attributable to losses incurred on or
before the Reference Date shall be considered. For this purpose, any contracts
that do not provide an adequate accounting of accident year information will be
allocated between losses incurred on or before the Reference Date and losses
incurred after the Reference Date on a reasonable and appropriate basis
consistent with the intent of this Agreement.
(6) Notwithstanding anything to the contrary contained herein, the
Purchaser shall be permitted from time to time, in its sole discretion to
purchase stop-loss reinsurance. The purchase of such reinsurance shall in no
way affect or be considered in determining the adjusted Purchase Price as of any
Redetermination Date.
(1) If on the final Redetermination Date the St. Paul Reserves as
carried on the Company's Statutory Statement at December 31, 1998 totaling
$5,646,500 (the "St. Paul Reserves") have developed adversely in an amount
-----------------
greater than $2,000,000 above such carried reserves, Seller shall reimburse
Purchaser for 50% of such excess development above $2,000,000, provided that the
Adjusted Closing Note Principal has been reduced to zero. In the alternative,
Seller may procure reinsurance covering the St. Paul Reserves in excess of
$7,646,500 (on terms mutually acceptable to the Purchaser and the Seller) and
the cost thereof will be shared equally by the Seller and the Purchaser. In the
event that the Seller and the Purchaser agree to procure such reinsurance on the
St. Paul Reserves, then, in such event, the Closing Note will not be reduced for
any adverse loss development on the St. Paul Reserves to the extent of any such
reinsurance recovered. Notwithstanding the foregoing, it is the intent of this
provision that adverse developments on all Subject Loss Reserves other than the
St. Paul Reserves shall be applied first to adjust the Adjusted Closing Note
Principal and then the St. Paul Reserves shall be applied to such adjustment.
(7) Following the Closing, upon the delivery of reasonable prior
written notice, the Seller may review, once each calendar year, claims payments,
expenses, reinsurance and other matters directly relating to the Subject Loss
Reserves. In that regard, the Purchaser shall, and shall cause its and the
Company's officers, directors, employees, auditors and agents to:
(A) afford the officers, employees, agents, accountants,
actuaries and representatives of the Seller reasonable
access (for a period not to exceed ten Business Days) during
normal business hours and upon reasonable advance written
notice, to the relevant offices, employees, properties,
books and records of the Company and the Purchaser; and
12
<PAGE>
(B) during the review period provided for in Clause (A) hereof,
upon the reasonable written request of the Seller, furnish
to the officers, employees, agents, accountants, actuaries
and representatives of the Seller such additional financial
and operating data and other information regarding claims
payments, expenses, reinsurance and other matters directly
relating to the Subject Loss Reserves as are available to
the Company or the Purchaser.
(8) As long as the Adjusted Closing Note Principal is in excess of
$1,000,000, Purchaser agrees that it will not, with respect to the Subject Loss
Reserves:
(i) commute any assumed reinsurance contract where the amount
to be paid upon such commutation exceeds by more than
$500,000 the loss reserves reported by the ceding company
in its most recent periodic statement sent to the Company
in the ordinary course of business prior to the initiation
of commutation discussions, without the prior approval of
Seller, such approval not to be unreasonably withheld or
delayed; or
(ii) otherwise take any action which is other than in the
ordinary course of business with respect to the Subject
Loss Reserves.
Regardless of the Adjusted Closing Note Principal, Purchaser agrees to provide a
listing of all individual losses paid with respect to the Subject Loss Reserves
in excess of $250,000 while the Closing Note remains outstanding. Such listing
shall be submitted quarterly to the Seller not later than sixty (60) days after
the close of each such quarter.
SECTION 1.4. Closing.
-------
(1) Subject to the terms and conditions of this Agreement, the sale
and purchase of the Shares contemplated hereby shall take place at a closing
(the "Closing") at 10:00 a.m., local time, on the fifth Business Day after the
-------
satisfaction of the conditions to closing set forth in Article VIII, at the
offices of Morgan, Lewis & Bockius LLP, 101 Park Avenue, New
13
<PAGE>
York, New York 10178, or at such other time or on such other date or at such
other place as the Seller and the Purchaser may mutually agree upon in writing
(the date on which the Closing takes place being the "Closing Date").
------------
(2) At the Closing, the Seller shall deliver or cause to be delivered
to the Purchaser stock certificates evidencing the Shares duly endorsed in blank
or accompanied by stock powers duly executed in blank, in proper form for
transfer, with all required stock transfer tax stamps affixed or provided for.
(3) The Provisional Purchase Price shall be payable by the Purchaser
to the Seller on the Closing Date as follows:
(1) $71,750,000 (the "Closing Payment") by wire transfer (to an
---------------
account designated by the Seller in writing at least three (3) Business
Days prior to Closing), bank check, certified check or any other instrument
agreed to by the Purchaser and the Seller in advance; and
(2) A promissory note of the Purchaser (the "Closing Note") in the
------------
initial principal amount of $20,750,000 (the "Initial Closing Note
--------------------
Principal"), which shall be subject to adjustment as provided in Section
---------
2.04 hereof. The Closing Note shall have terms and provisions consistent
with Section 2.04 hereof and shall be subordinated to all amounts due and
owing under Purchaser's loan agreement with First Chicago under
subordination terms satisfactory to First Chicago. The parties shall
mutually agree to the form of the Closing Note within 20 Business Days
after the date hereof and Purchaser shall promptly thereafter submit the
form of Closing Note to First Chicago for its approval and will use all
commercially reasonable efforts to obtain such approval within 60 days
after the date hereof.
(4) At the Closing, the Seller and the Purchaser shall deliver to
each other the opinions, certificates and other documents described in Article
VIII hereof.
SECTION 1.5. Payment of Principal and Interest on the Closing Note.
-----------------------------------------------------
(1) On March 15, 2001, March 15, 2002 and March 15, 2003,
respectively, or such later date when any Dispute shall have been resolved as
provided in Section 2.02(d) (each being an "Interest Payment Date"), the
---------------------
Purchaser shall pay to the Seller interest on the Adjusted Closing Note
Principal (as redetermined as of the most recent Redetermination Date) at an
effective annual rate equal to the annual interest rate for five year United
States Treasury Notes prevailing on the Closing Date plus 50 basis points (the
"Closing Note Rate") for the period from the Closing Date up to the first
-----------------
Redetermination Date, and, thereafter, for the period from the most recent
Redetermination Date in respect of which interest shall have been paid up to and
including the current Redetermination Date.
14
<PAGE>
(2) On the fifth anniversary of the Closing Date or such later date
when any Dispute shall have been resolved as provided in Section 2.02(d) (the
"Maturity Date"), the Purchaser shall pay to the Seller the Adjusted Closing
-------------
Note Principal (as redetermined as of the most recent Redetermination Date),
together with interest on the Adjusted Closing Note Principal at the Closing
Note Rate for the period from the most recent Redetermination Date in respect of
which interest shall have been paid up to and including the Maturity Date.
(3) For purposes of this Section 2.04, the "Adjusted Closing Note
---------------------
Principal" shall mean, as of each Redetermination Date and the Maturity Date, an
- ---------
amount equal to the Initial Closing Note Principal reduced dollar for dollar by
the amount, if any, by which the Provisional Purchase Price exceeds the Adjusted
Purchase Price (as redetermined as of the most recent Redetermination Date);
provided, however, that in no event shall the amount of the Initial Closing Note
- -------- -------
Principal be reduced below zero.
(4) In the event the shareholder's equity of the Purchaser as at the
end of any fiscal quarter or year end shall be less than $200,000,000, based on
the Purchaser's regularly prepared GAAP financial statements, the Purchaser
shall, within 60 days after the end of a fiscal quarter or within 105 days after
the end of a year, as applicable, deposit with an escrow agent an amount equal
to the Adjusted Closing Note Principal, plus all accrued and unpaid interest
thereon. Such amount shall be deposited pursuant to an escrow agreement mutually
satisfactory to the Seller and the Purchaser, the form, terms and provisions of
which shall be agreed upon prior to the Closing.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
As an inducement to the Purchaser to enter into this Agreement, the
Seller hereby represents and warrants to the Purchaser as follows:
SECTION 1.6. Incorporation and Authority of the Seller. The Seller
-----------------------------------------
is a company duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all necessary corporate power and
authority to own, lease and operate its Properties (including the Shares), to
conduct its business as now being conducted, to enter into this Agreement and
each other agreement and instrument required to be executed and delivered by the
Seller pursuant hereto, to carry out its obligations hereunder and thereunder
and to consummate the transactions contemplated hereby and thereby. The
execution, delivery and performance by the Seller of this Agreement and each
other agreement and instrument required to be executed and delivered by the
Seller pursuant hereto, and the consummation by the Seller of the transactions
contemplated hereby and thereby, have been duly and validly authorized by
15
<PAGE>
all requisite corporate action (including any stockholder action) and no other
corporate proceedings on the part of the Seller is necessary to authorize the
foregoing. This Agreement has been, and at the Closing the other agreements and
instruments required pursuant hereto and to which the Seller is a party will
have been, duly and validly executed and delivered by the Seller, and (assuming
due authorization, execution and delivery by the Purchaser of this Agreement and
by the Purchaser and each other party (other than Seller) to any other document
delivered hereunder), each of this Agreement and such other documents at the
Closing will constitute a legal, valid and binding obligation of the Seller,
enforceable against the Seller in accordance with its terms, subject to the
effect of any applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 1.7. Incorporation and Qualification of the Company. The
----------------------------------------------
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the Commonwealth of Massachusetts and has the
necessary corporate power and authority to own, operate or lease the properties
and assets now owned, operated or leased by the Company and to carry on the
Business now being conducted by the Company. The Seller has delivered to the
Purchaser true and complete copies of the Charter and By-laws of the Company as
in effect on the date hereof. The Company is duly qualified as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failures which,
individually or in the aggregate, would not have a Material Adverse Effect. The
Company is licensed or authorized to write reinsurance or insurance in each of
the jurisdictions listed in Section 3.02 of the Disclosure Schedule. True and
correct copies of the licenses issued by each such jurisdiction have been
provided to the Purchaser.
SECTION 1.8. Capital Stock of the Company. The Shares constitute
----------------------------
all the issued and outstanding shares of capital stock of the Company. Except
for 5,000 shares of common stock which are authorized but not outstanding and
the Shares, no other class of capital stock, equity security, preferred stock,
bonds, debentures, notes, debt instruments, evidence of indebtedness or other
securities of any kind in the Company are authorized or outstanding. The Shares
have been duly authorized and validly issued and are fully paid and non-
assessable and were not issued in violation of any preemptive rights. As of the
date hereof, except as set forth in Section 3.03 of the Disclosure Schedule,
there is no, and as of the Closing Date there will be no, security, option,
warrant, right, call, subscription, agreement, commitment or understanding of
any nature whatsoever, fixed or contingent, that directly or indirectly, (i)
except as contemplated by this Agreement, calls for the issuance, sale, pledge
or other disposition of any shares of capital stock of the Company or any
securities convertible into, or other rights to acquire, any shares of capital
stock of the Company, (ii) relates to the voting or control of such capital
stock, securities or rights, or (iii) obligates the Seller or the Company to
grant, offer or
16
<PAGE>
enter into any of the foregoing. As of the date hereof, except as set forth in
Section 3.03 of the Disclosure Schedule, the Seller owns, and as of the Closing
Date the Seller will own, the Shares, free and clear of all Encumbrances, other
than the obligation hereunder to sell the Shares to the Purchaser. Upon the
conveyance and transfer of the Shares to the Purchaser as contemplated hereby,
the Purchaser shall acquire good and marketable title to the Shares, free and
clear of all Encumbrances (except as may result from any facts or circumstances
relating solely to the Purchaser or its Affiliates) and the Purchaser will be
entitled to all rights of a holder of the Shares.
SECTION 1.9. Subsidiaries.
------------
(1) Except as set forth in Section 3.04(a) of the Disclosure
Schedule, as of the date hereof, the Company has no Subsidiaries. As of the
Closing Date, the Company will have no Subsidiaries. With respect to the
Subsidiaries set forth in Section 3.04 of the Disclosure Schedule, (i) all
outstanding capital stock of such Subsidiaries has been duly authorized and
validly issued and is fully paid and non-assessable and, as of the date hereof,
is owned beneficially and of record by the Company free and clear of all
Encumbrances; and (ii) there are no outstanding options, warrants,
subscriptions, rights, convertible securities or other agreements or plans under
which any Subsidiary may become obligated to issue, sell or transfer shares of
its capital stock or other securities.
(2) Except as set forth in Section 3.04(b) of the Disclosure Schedule
(and, with respect to clause (i), except as set forth in the Investment
Portfolio), there are no corporations, partnerships, limited liability
companies, joint ventures, associations or other entities (i) in which the
Company owns, of record or beneficially, any direct or indirect equity,
membership or other interest or any right (contingent or otherwise) to acquire
the same, or (ii) which the Company controls, directly or indirectly, by
contract or proxy or otherwise, alone or in combination with any other Person.
(3) Except as set forth in Section 3.04(c) of the Disclosure
Schedule, there are no assets or Properties owned by, or in the possession of,
the Seller, USF Insurance Company, US Holdings, Inc. (or any other Subsidiary of
the Company) which are used, or necessary, in connection with the Business of
the Company (excluding those portions of the Business transferred prior to
Closing pursuant to Section 5.14(a) hereof). Neither USF Insurance Company, US
Holdings, Inc. nor any other Subsidiary of the Company has any debts,
liabilities, obligations or other commitments (other than those which are to be
satisfied prior to Closing pursuant to Section 5.13 hereof) (i) which are
guaranteed or secured by the Company or (ii) for which the Company may be
liable.
SECTION 1.10. No Conflict.
-----------
17
<PAGE>
(1) Except as set forth in Section 3.05(a) of the Disclosure
Schedule, neither the Seller nor the Company is in violation or default in any
material respect (and is not in default in any respect regarding any
indebtedness, loan or credit agreement) under any indenture, agreement or
instrument to which it is a party or by which it or any of its assets or
properties may be bound. Neither the Seller nor the Company is in default under
any order, writ, injunction, judgment or decree of any Governmental Authority or
arbitrator(s).
(2) Assuming all consents, approvals, authorizations, orders and
other actions described in Section 3.06 have been obtained and/or taken, and all
filings and notifications described in Section 3.06 have been made, except as
may result from any facts or circumstances relating solely to the Purchaser or
its Affiliates, the execution, delivery and performance of this Agreement by the
Seller, the sale of the Shares pursuant to this Agreement and the consummation
by the Seller and the Company of the transactions contemplated hereby do not and
will not (a) violate or conflict with the respective charter documents of either
the Seller or the Company, (b) conflict with or violate any material law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
applicable to the Seller, the Company or the Business, or (c) result in any
material breach of, or constitute a material default (or event which with the
giving of notice or lapse of time, or both, would become a material default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any material Encumbrance on any of
the material assets or properties of the Company pursuant to any Contract,
Permit or other instrument relating to such assets or properties to which the
Seller or the Company is a party or by which any of such assets or properties is
bound or affected.
SECTION 1.11. Consents and Approvals. The (i) execution and
----------------------
delivery by the Seller of this Agreement and each other agreement and instrument
required to be executed and delivered by the Seller in connection herewith, (ii)
sale of the Shares pursuant to this Agreement and (iii) consummation of the
transactions contemplated hereby (including without limitation, the transactions
contemplated by Section 5.14 hereof) do not, and the Seller's and the Company's
performance of this Agreement and each other agreement and instrument required
to be executed and delivered by the Seller or the Company in connection herewith
will not, require the Seller or the Company to obtain any consent, approval,
authorization, order or other action by, or require the Seller or the Company to
file with or notify any Governmental Authority, except pursuant to (a) the
notification requirements of the HSR Act, (b) the approval of the Massachusetts
Insurance Division and the Pennsylvania Insurance Department, (c) the filing
requirements under the Exchange Act and (d) the notification requirements
described in Section 3.06 of the Disclosure Schedule.
SECTION 1.12. Financial Information.
---------------------
(1) The Company has heretofore delivered to the Purchaser true and
complete copies of the Annual Statutory Statements and the Quarterly Statutory
Statements. Each of the
18
<PAGE>
Annual Statutory Statements and Quarterly Statutory Statements was prepared in
accordance with SAP consistently applied throughout the periods involved, was
prepared in accordance with the books and records of the Company, has been
audited by KPMG LLP (the "Company's Accountants"), and presents fairly the
---------------------
statutory financial position of the Company at the respective date thereof and
the statutory results of operations and cash flows of the Company for the
respective periods then ended, except (x) that the audit report with respect to
the 1998 Annual Statutory Statement has not been completed and delivered to the
Seller and (y) the Quarterly Statutory Statements have not been audited and are
subject to normal recurring year-end audit adjustments. Each of the Annual
Statutory Statements and Quarterly Statutory Statements (i) complies in all
material respects with the Massachusetts Insurance Code, (ii) was complete and
correct in all material respects when filed, (iii) was filed with or submitted
to the Massachusetts Insurance Division in a timely manner on forms prescribed
or permitted by the Massachusetts Insurance Division, except that an amendment
to the 1998 Annual Statutory Statement will be filed in the next week with the
Massachusetts Insurance Division increasing the reserves reflected therein, a
copy of which has been provided to Purchaser, and (iv) was not prepared
utilizing any material accounting practices that are permitted rather than
prescribed by the Massachusetts Insurance Division. Except as set forth in
Section 3.07 of the Disclosure Schedules, no material deficiency has been
asserted with respect to any of the Annual Statutory Statements or Quarterly
Statutory Statements by the Massachusetts Insurance Division or any other
Governmental Authority.
(2) The Company has heretofore delivered to the Purchaser true and
complete copies of the Reference Financial Statement. The Reference Financial
Statement was prepared in accordance with the books and records of the Company,
and presents fairly the SAP financial position of the Company at the respective
dates thereof and the results of operations and cash flows of the Company for
the respective periods then ended, except, (i) the presentation of the
Subsidiaries, which are included on the Reference Financial Statement under the
equity method of accounting for investments in common stock at an agreed value
of $15,044,265, and (ii) the results of operation of the Subsidiaries, which are
excluded from the special purpose income statement.
SECTION 1.13. Absence of Undisclosed Liabilities. Except as
----------------------------------
disclosed in Section 3.08 of the Disclosure Schedule, there are no debts,
liabilities, obligations or commitments of the Company (including any debts,
liabilities, obligations or commitments relating to the Company's operation of
the Business under the name "Massachusetts Plate Glass Insurance Company") of
any kind whatsoever, whether accrued, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, contingent, absolute, known or
unknown, determined, determinable or otherwise, and there is no existing
condition, situation or set of circumstances which could reasonably be expected
to result in such a debt, liability, obligation or commitment other than:
19
<PAGE>
(1) as, and to the extent, reflected or reserved against in the
Reference Financial Statement; provided, however, that in no event shall this
-------- -------
Section 3.08 or any other provision of this Agreement, other than Section 3.11,
constitute a representation or warranty of any nature whatsoever regarding the
adequacy of the Reserves;
(2) as, and to the extent, specifically disclosed in any of the
subsections of this Article III or the Disclosure Schedule;
(3) with respect to the tax matters addressed in Section 3.25 and
Article VII (which shall be governed solely by the terms of such Section 3.25
and Articles VII and IX);
(4) liabilities arising under any Reinsurance Agreements or any
insurance policies written by the Company; or
(5) liabilities incurred since the date of the Reference Financial
Statement in the ordinary course of business and consistent with past practice,
which, individually and in the aggregate, would not have a Material Adverse
Effect.
Notwithstanding any of the exceptions set forth in clauses (a) through (e)
above, the Company has no knowledge of any liabilities, contingent or
otherwise, for insurance policies underwritten in the name of "Massachusetts
Plate Glass Insurance Company".
SECTION 1.14. Investments. Except as set forth in Section 3.09 of
-----------
the Disclosure Schedule, the Company has good and marketable title to all of the
investments listed in the most recent Investment Portfolio provided to the
Purchaser, free and clear of all Encumbrances. Section 3.09 of the Disclosure
Schedule sets forth the Investment Portfolio as of the Reference Date. Except
as set forth in Section 3.09 of the Disclosure Schedule, none of the investments
listed in the Investment Portfolio is in default in the payment of principal or
interest or dividends. All such investments comply with the investment
guidelines adopted by the Investment Committee of Seller's Board of Directors
applicable to the Company and substantially comply with any and all investment
restrictions under the Massachusetts Insurance Code.
SECTION 1.15. Certain Events.
--------------
(1) Except as set forth in Section 3.10 of the Disclosure Schedule,
since September 30, 1998 there has been no change in the Business, operations,
assets, Properties, condition (financial or otherwise), results of operations,
insurance licenses or Permits of the Company which, individually or in the
aggregate, has had or is reasonably likely to have a Material Adverse Effect.
20
<PAGE>
(2) Except as set forth in Section 3.10 of the Disclosure Schedule or
as specifically disclosed in the Company's 1998 Annual Statutory Statement,
since September 30, 1998 the Business of the Company has been conducted only in
the ordinary course of business consistent with past practice and there has not
been:
(1) any material change in the underwriting, reinsurance, marketing,
accounting, establishment of reserves, investment or claims adjustment
policies and practices of the Company, including, without limitation, any
change which has had the effect of accelerating the recording and billing
of premiums or accounts receivable or retarding the payment of expenses or
establishing Reserves in connection with any accounts or Business of the
Company, or has had the effect of materially altering, modifying or
changing the historic operating, financial or accounting practices or
policies of the Company, including accruals of and reserves for Tax
liabilities;
(2) any damage, destruction or casualty loss with respect to the
Property of the Company (whether or not covered by insurance) which has had
or is reasonably likely to have a Material Adverse Effect;
(3) any payment pursuant to the Tax Sharing Agreement other than a
payment permitted under Section 5.01(g)(iii) hereof.
(4) any direct or indirect repurchase, redemption or other
acquisition by the Company of any shares of capital stock or other
securities of the Company, or any declaration, setting aside or payment of
any dividend or other distribution in respect of shares of capital stock of
the Company;
(5) any employment, bonus, incentive or deferred compensation,
severance or termination agreement or arrangement entered into between the
Company and a director, officer or other employee or consultant of the
Company;
(6) any indebtedness incurred by the Company for borrowed money,
including, without limitation, obligations in respect of capitalized
leases, or any guarantee by the Company of indebtedness for borrowed money
or any other obligation of any other Person;
(7) any sale, lease, abandonment or other disposition by the Company
of any interest in Property, other than for fair value in the ordinary
course of business and consistent with past practice;
(8) any increase in the rate or terms of the compensation payable or
to become payable by the Company to any of its directors, officers or
employees, except
21
<PAGE>
salary increases to non-management employees in the ordinary course of
business and consistent with past practice;
(9) the creation of any Encumbrance on all or any portion of any
material assets, Properties or rights of the Company, except Permitted
Encumbrances;
(10) any capital expenditure made by the Company, except capital
expenditures not exceeding an aggregate of $50,000;
(11) any amendment, modification, alteration, failure to renew or
termination of any Contract or Reinsurance Agreement which, individually or
in the aggregate with such other amendments, modifications, alterations,
failure to renew or terminations, has had or could reasonably be expected
to have a Material Adverse Effect;
(12) any amendment, modification or termination of any Plan;
(13) any waiver of any rights of material value or any cancellation or
forgiveness of any claims, debts or accounts receivable owing to the
Company other than in the ordinary course of business and consistent with
past practice;
(14) any making of any loan, advance or capital contribution to or
investment by the Company in any Person, except in the ordinary course of
business and consistent with past practice;
(15) any transaction or commitment made, or any contract or agreement
entered into, between the Company on the one hand, and the Seller or any of
its Affiliates on the other hand;
(16) any adoption of a plan of complete or partial liquidation,
dissolution, rehabilitation, restructuring, recapitalization, re-
domestication or other reorganization with respect to the Company;
(17) any entry into any joint venture, partnership, managing general
agency or similar arrangement with any Person;
(18) any incurrence by the Company of any material liability for rate
roll-backs or premium refunds, or failure by the Company to pay in full all
guaranty fund assessments of which written notice has been received from
any Governmental Authority;
(19) any authorization, approval, agreement or commitment to do any of
the foregoing; or
22
<PAGE>
(20) any other event or occurrence which has had or is reasonably
likely to have a Material Adverse Effect.
SECTION 1.16. Insurance Reserve.
-----------------
(1) The Reserves as of the Reference Date and any subsequent date on
which such Reserves may have been redetermined (i) were determined in accordance
with SAP, (ii) were computed in accordance with generally accepted loss
reserving standards and principles; (iii) met the requirements of the
Massachusetts Insurance Code; and (iv) made reasonable provision, in the
aggregate, for all unpaid loss and loss expense obligations, including
obligations for incurred but not reported loss and loss adjustment expenses, and
unearned premiums as of the Reference Date. The Company owns assets that qualify
as admitted assets under the Massachusetts Insurance Code in an amount at least
equal to the Reserves plus its minimum statutory capital and surplus as required
under the Massachusetts Insurance Code.
(2) The Seller has delivered or made available to the Purchaser true
and complete copies of all actuarial reports, actuarial certificates and loss
and loss adjustment expense reserve reports prepared by Dale Ogden & Associates
and any other report prepared by any third party actuarial consultant on behalf
of or made available to the Seller or any of its Affiliates, including the
Company, in each case relating to the adequacy of the Reserves for any period
ended on or after December 31, 1995.
SECTION 1.17. Judgments, Decrees and Orders. Neither the Company
-----------------------------
nor any of its directors, officers or employees (in their capacity as such) is a
party to or subject to any judgment, decree, order, writ, award, or injunction
of any Governmental Authority or arbitrator which, individually or in the
aggregate with all such other judgments, decrees, orders, writs, awards and
injunctions, has had or is reasonably likely to have a Material Adverse Effect.
There is no default in any material respect on the part of the Company with
respect to any judgment, order, writ, arbitration award, injunction, decree or
award of any Governmental Authority or arbitrator to which it is subject.
SECTION 1.18. Litigation. Except as set forth in Section 3.13 of
----------
the Disclosure Schedule, there are no claims, actions, suits, investigations,
arbitrations or legal, administrative or other proceedings pending and, to the
knowledge of the Seller and the Company, none are threatened, against or
affecting the Company or any of its Properties, at law or in equity, or before
or by any Governmental Authority or arbitrator. Since January 1, 1997, except
with respect to payments made in the ordinary course in connection with
Reinsurance Agreements or insurance policies written by the Company, there have
been no payments made by or on behalf of the Company (other than pursuant to
Reinsurance Agreements) with respect to any threatened or previously outstanding
litigation.
23
<PAGE>
SECTION 1.19. Compliance with Laws. The Company is in compliance
--------------------
with (a) the terms of its certificate or articles of incorporation, its by-laws
and any other charter or organization documents, (b) all laws, statutes,
ordinances, rules, regulations or other legal requirements, whether federal,
state, local or foreign, applicable to the Company or by which any of its
Properties may be bound, (c) all applicable licenses, authorizations, orders,
writs, judgements, injunctions, awards and decrees of any court, the
Massachusetts Insurance Division or other Governmental Authority, or any
arbitrator and (d) its Permits, except, in the case of clauses (b), (c) and (d),
where the failure to comply would not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 1.20. Environmental, Health and Safety Compliance.
-------------------------------------------
(1) For purposes of this Agreement, the term "Environmental and Safety
-----------------------------
Requirements" shall mean all federal, state and local statutes, regulations,
- ------------
ordinances, decrees and other provisions having the force or effect of law, all
judicial and administrative orders and determinations to which the Company, the
Seller or any Subsidiary of the Company or the Seller is subject, and all common
law, in each case concerning public health and safety, worker health and safety
and pollution or protection of the environment; and "Environmental Lien" shall
------------------
mean any Encumbrance, whether recorded or unrecorded, in favor of any
Governmental Authority relating to any liability of the Company arising under
any Environmental and Safety Requirements.
(2) Except as set forth in Section 3.15 of the Disclosure Schedule and
other than liabilities in connection with any Reinsurance Agreements or
insurance policies written by the Company:
(1) The Company has complied with and is currently in compliance with
all Environmental and Safety Requirements, and the Seller and the Company
have not received any oral or written notice, report or information
regarding any liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) or any corrective, investigatory or remedial
obligations arising under Environmental and Safety Requirements which
relate to the Company or any of its Properties or facilities, except for
any such noncompliance, liability or obligation which has not had and is
not reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect.
(2) Without limiting the generality of the foregoing, the Company has
obtained and complied with, and is currently in compliance with, all
Permits, licenses and other authorizations that may be required pursuant to
any Environmental and Safety Requirements for the occupancy of its
Properties or facilities or the operation of the Business. A list of all
such Permits, licenses and other authorizations is set forth in Section
3.15 of the Disclosure Schedule.
24
<PAGE>
(3) Neither this Agreement nor the consummation of the transactions
contemplated by this Agreement shall impose any obligations on the Company
or otherwise for site investigation or cleanup, or notification to or
consent of any Government Authorities or third parties under any
Environmental and Safety Requirements (including, without limitation, any
so-called "transaction-triggered" or "responsible property transfer" laws
and regulations).
(4) The Company has not, either expressly or by operation of law,
assumed or undertaken any liability or corrective, investigatory or
remedial obligation of any other Person relating to any Environmental and
Safety Requirements, which liability or obligation is or will be
outstanding as of the date of this Agreement or as of the Closing Date.
(5) No Environmental Lien has attached to any Property owned, leased
or operated by the Company, which attachment is or will be outstanding as
of the date of this Agreement or as of the Closing Date.
(6) There is no existing practice, action or plan of the Company and
no existing condition of the assets of the Company which could reasonably
be expected to give rise to any civil or criminal liability under, or
prevent compliance with, any Environmental and Safety Requirements, other
than those the existence of which, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect.
SECTION 1.21. Licenses and Permits. Except as set forth in Section
--------------------
3.16 of the Disclosure Schedule, the Company has all governmental licenses,
permits and authorizations (other than those relating to the writing of
insurance which are covered by the next sentence) necessary to carry on the
Business now being conducted by the Company (collectively, the "Permits"), all
-------
of which are valid and in full force and effect, except for such Permits the
absence of which, individually or in the aggregate, would not have a Material
Adverse Effect. Section 3.02 of the Disclosure Schedule lists all jurisdictions
in which the Company is licensed, authorized or permitted to write insurance or
reinsurance. The Company has been duly authorized by the relevant state, foreign
and other insurance regulatory authorities to write the lines of insurance or
reinsurance that it is currently writing in the respective jurisdictions in
which it does business. Except as set forth in Section 3.16 of the Disclosure
Schedule, the Company does not conduct any business or underwrite reinsurance in
any foreign jurisdiction which requires any license or approval for the Company
to conduct its Business as currently conducted. No insurance regulator in any
state has notified the Company, orally or in writing, that the Company is
commercially domiciled in any jurisdiction, and neither the Seller nor the
Company is aware of any facts that would result in the Company being
commercially domiciled in any state. The insurance licenses attached to Section
3.02 of the Disclosure Schedule are the licenses necessary for the Company to
conduct the Business in the manner and
25
<PAGE>
in the areas in which such Business is currently being conducted except where
the failure to be so licensed would not, individually or in the aggregate, have
a Material Adverse Effect, and all of the insurance licenses are valid and in
full force and effect. The Company has not received any notice, oral or written,
that it has, and to its knowledge it has not, engaged in any activity which
would cause modification, limitation, non-renewal, revocation or suspension of
any insurance license or Permit, and no action, inquiry, investigation or
proceeding looking to or contemplating the revocation, modification, limitation,
non-renewal or suspension of any thereof is pending or threatened. Except as set
forth in Section 3.16 of the Disclosure Schedule, (i) all reports, statements,
documents, registrations, filings and submissions to state insurance regulatory
authorities complied in all respects with applicable law in effect when filed
and (ii) no deficiencies have been asserted by any such regulatory authority
with respect to such reports, statements, documents, registrations, filings or
submissions that have not been satisfied except to the extent that any failure
to file such items or such deficiencies would not, individually or in the
aggregate, result in a Material Adverse Effect.
SECTION 1.22. Intellectual Property Rights. Section 3.17 of the
----------------------------
Disclosure Schedule sets forth a list of each trade name, service mark,
trademark, logo, copyright, patent and other intangible property used by the
Company which is material to the conduct of its Business, other than computer
software generally available in the market (collectively, "Intellectual Property
---------------------
Rights"), which are all the material intellectual property rights that are
- ------
required to conduct the Business. Except as set forth in Section 3.17 of the
Disclosure Schedule, the Company owns and has good and marketable title or has
valid and enforceable licenses relating to all of the Intellectual Property
Rights and such computer software, and has the right to use the Intellectual
Property Rights and such computer software, free and clear of any royalty or
other payment obligation (except as provided in any license) or claims of
infringement or other Encumbrance. Neither the Seller nor the Company has
received any notice of any conflict with or violation or infringement of, any
rights of any other Person with respect to any Intellectual Property Right or
such computer software. The Intellectual Property Rights have been registered to
the extent required with the appropriate Governmental Authority and such
registrations have been continuously maintained and are in full force and
effect. To the best of the knowledge of the Seller and the Company, the rights
of the Company to the Intellectual Property Rights are not being infringed by
others. No licenses have been granted by the Company, and there is no obligation
requiring the Company to grant any license, with respect to any of the
Intellectual Property Rights.
SECTION 1.23. Property.
--------
(1) The Company owns no real property. The Company leases no real
property other than the real property located at 100 Campus Drive, Suite 310,
Florham Park, New Jersey. A true and correct copy of the lease with respect to
such real property has been provided to the Purchaser. The Company's leasehold
interest in the Florham Park, New Jersey real property is free and clear of all
Encumbrances, except: (i) liens for Taxes and assessments
26
<PAGE>
not yet payable; (ii) liens, imperfections of title and easements which do not,
either individually or in the aggregate, materially detract from the value of,
or interfere with the present use of, the Properties subject thereto or affected
thereby; and (iii) inchoate mechanic and materialmen liens for construction in
progress and workmen's, repairmen's, warehousemen's and carrier's liens arising
in the ordinary course of the Business, provided that the liabilities secured by
such liens are not due or delinquent (the exceptions in clauses (i), (ii) and
(iii) being herein called "Permitted Encumbrances").
----------------------
(2) Neither the Company nor, to the best knowledge of the Seller and
the Company, any other party thereto, is in or is claimed to be in material
breach of or in material default under any material lease of real property to
which the Company is a party, and no event has occurred which (after notice or
lapse of time or both) would become a material breach or material default under,
or would permit modification, cancellation, acceleration or termination of, any
such material lease or result in the creation of any material Encumbrance upon,
or any Person obtaining any right to acquire, any Properties, assets or rights
of the Company. There are no unresolved disputes under any such lease.
(3) The Company has good and marketable title to, or a valid
leasehold interest in, all its material personal Property free and clear of all
Encumbrances except Permitted Encumbrances.
(4) All equipment, fixtures and other Properties owned, leased or
used by the Company (all of which are listed in Section 3.18(d) of the
Disclosure Schedule) are (i) in good operating condition and repair, reasonable
wear and tear excepted, and (ii) adequate for the Business currently conducted
by the Company and suitable in all respects for the purposes for which they are
now being used, except for such failures to be in such good operating condition
or adequacy or suitability which, individually and in the aggregate, do not have
a Material Adverse Effect.
SECTION 1.24. Insurance.
---------
(1) Section 3.19 of the Disclosure Schedule contains a true and
correct list of all property and casualty, liability, workers compensation,
directors and officers liability, surety bonds, key-man and life insurance and
other similar insurance contracts (including the expiration dates thereof, the
limits of liability, deductible amounts, and the annual premiums thereof) that
insure the business, operations or affairs of the Company that (i) have been
issued to the Company or (ii) are held by the Seller or by any Affiliate of the
Seller for the benefit of the Company and that will not continue to be
applicable to the Company following the Closing. All such insurance is in full
force and effect and, to the best of the knowledge of the Seller and the
Company, is with financially sound and reputable insurers in accordance with
normal industry practice.
27
<PAGE>
(2) Since January 1, 1995, the Company has not failed to give any
material notice or to present any material claim under any insurance policy or
surety bond in due and timely fashion. The Seller has given the Purchaser the
most recently available reports for the Company on: (i) accidents, casualties or
damages occurring on or to the Properties or assets of the Company; and (ii)
claims by the Company for damages, reimbursement of losses, contribution or
indemnification under any insurance policy and settlements or negotiations of
settlements relating thereto, except with respect to claims pursuant to
Retrocession Arrangements.
SECTION 1.25. Relationships with Affiliates, Officers, Directors
--------------------------------------------------
and Interested Parties. Except as set forth in Section 3.20 of the Disclosure
- ----------------------
Schedule and other than intercompany payables and receivables arising from the
payment of expenses or provision of services by the Company on behalf of the
Seller, or by the Seller on behalf of the Company, as the case may be (which
shall be reduced to zero by a cash payment by the Seller to the Company on or
before the Closing Date), the Company is not a party to any contract, agreement
or arrangement with the Seller or any of its Affiliates, or any officer,
director or employee of such Persons.
SECTION 1.26. Assumed and Ceded Reinsurance Agreements.
----------------------------------------
(1) As used in this Agreement, the term "Reinsurance Agreements"
----------------------
shall mean all assumed and ceded reinsurance and retrocession agreements,
contracts, treaties, obligations, instruments or other reinsurance or
retrocession commitments, arrangements or undertakings of any kind to which the
Company is a party or by which the Company or any of its respective Properties
may be bound or affected.
(2) Set forth in Section 3.21(b) of the Disclosure Schedule is a
complete and accurate list of each Reinsurance Agreement pursuant to which the
Company has assumed business and which was in force at any time after December
31, 1987 and prior to January 1, 1999, including a description of certain of the
terms thereof (including the name of the ceding company, the name of the broker,
type of contract, inception date, estimated premium and limit). The Seller will
deliver to the Purchaser at the Closing a complete and accurate list of each
assumed Reinsurance Agreement in force five Business Days prior to the Closing
Date, including information similar to Section 3.21(b) of the Disclosure
Schedule.
(3) Set forth in Section 3.21(c) of the Disclosure Schedule is a
complete and accurate list of each Reinsurance Agreement pursuant to which the
Company has ceded or transferred any portion of its obligations or liabilities
under any reinsurance or insurance agreement (a "Retrocession Arrangement") and
------------------------
which was in force at the Reference Date, including a description of certain of
the terms thereof (including the name of the retrocessionaire, type of contract,
inception date, estimated premium and limit). Except as set forth in Section
3.21(c) of the Disclosure Schedule, (i) to the best knowledge of the Seller and
28
<PAGE>
the Company, none of such retrocessionaires is insolvent or the subject of a
rehabilitation, liquidation, conservatorship, receivership, bankruptcy or
similar proceeding; (ii) the financial condition of any such retrocessionaire is
not impaired to the extent that a default thereunder is reasonably anticipated,
(iii) no notice of intended cancellation has been received by the Company from
any of such retrocessionaires; and (iv) the Company is entitled under the
Massachusetts Insurance Code to take full credit in its Annual Statutory
Statements for all amounts recoverable by it pursuant to any Retrocession
Arrangement, and all such amounts recoverable have been properly recorded in the
books and records of account of the Company and are properly reflected in the
Annual Statutory Statements. The Seller will deliver to the Purchaser at the
Closing a complete and accurate list of each Retrocession Arrangement in force
five Business Days prior to the Closing Date including information similar to
Section 3.21(c) of the Disclosure Schedule. No such Retrocession Arrangement
contains any provision providing that any such party thereto may terminate,
cancel, or commute the same by reason of the transactions contemplated by this
Agreement.
(4) All of the Reinsurance Agreements are valid, binding and
enforceable against the Company and, to the best of the knowledge of the Seller,
against the other parties thereto in accordance with their terms and are in full
force and effect. The Company is not, and to the best of the knowledge of the
Seller and the Company, no other party thereto is, in or claimed to be in
material breach or material default under any Reinsurance Agreement, and no
event has occurred which (after notice or lapse of time or both) would become a
material breach or material default under, or would permit modification,
cancellation, acceleration or termination of, any Reinsurance Agreement or
result in the creation of any material Encumbrance upon, or result in any Person
obtaining any right to acquire, any Properties, assets or rights of the Company.
There are no unresolved disputes under any Reinsurance Agreement.
SECTION 1.27. Other Contracts.
---------------
(1) Set forth on Section 3.22 of the Disclosure Schedule is a
complete and accurate list of (x) each Contract which is material to the
Business, Properties, operations, assets, liabilities or financial condition of
the Company and (y) without regard to materiality, each of the following
Contracts relating to the Company (access to correct and complete copies or, if
none exist, written descriptions, of all Contracts called for by clauses (x) and
(y) having been provided to the Purchaser):
(1) All Contracts out of the ordinary course of business
representing, individually or in the aggregate, non-terminable future
liabilities in excess of $50,000;
(2) Each employment, severance, termination, agency, brokerage,
consultation or representation Contract or similarly binding arrangement of
any type (including, without limitation, loans or advances) with any
current or former executive,
29
<PAGE>
employee, consultant, representative, officer or director of the Company,
or any managing general agent, agent, reinsurance intermediary, claims
adjuster or administrator or broker of the Company who receives
compensation or commissions of $25,000 or more per year or to whom any
underwriting or claims settlement authority is delegated, and the name,
position and rate of compensation of each such Person and the expiration
date of each such Contract;
(3) All Contracts or similarly binding arrangements with any Person
containing any provision or covenant limiting the ability of the Company to
engage in any line of business in any geographical area or compete with any
Person;
(4) All partnership, joint venture or profit-sharing Contracts with
any Person (other than participation in reinsurance arrangements and
underwriting agreements entered into in the ordinary course of business and
consistent with past practice);
(5) All Contracts relating to the borrowing of money or the deferred
purchase price of Property (other than repurchase agreements and reverse
repurchase agreements entered into in the ordinary course of managing the
Company's investments and consistent with past practice), or the direct or
indirect guarantee of any obligation for, or Contracts to service the
repayment of, borrowed money or any other liability in respect of
indebtedness for borrowed money of any other Person;
(6) Each lease, sublease, license (excluding computer software) or
rental or use Contract to which the Company is a party with respect to
personal Property used by the Company in the conduct of its Business,
operations or affairs and providing for annual rental payments to be paid
by or on behalf of the Company in excess of $10,000;
(7) All Contracts relating to the future disposition or acquisition
of any investment in any Person or of any interest in any business
enterprise (other than the disposition or acquisition of investments in the
ordinary course of business consistent with past practice), and all
Contracts requiring the Company to purchase any security (other than such
purchases in the ordinary course of business consistent with past
practice);
(8) All reinsurance pools pursuant to which the Company has assumed
reinsurance risks currently in force and all assigned pools in which the
Company is participating, other than state FAIR plans, assigned risk plans,
joint underwriting associations and similar associations arising from the
requirements of state insurance rules and regulations;
(9) Each Contract relating to computer software licensing or data
processing services representing non-terminable future liabilities in
excess of $10,000;
30
<PAGE>
(10) Each Contract (other than Contracts cancelable at will or with
30 days' notice, in each case without penalty) involving payments of more
than $10,000 during its term for the purchase of materials, supplies or
services;
(11) Each Contract (other than Contracts cancelable at will or with
30 days' notice, in each case without penalty) which obligates the Company
to provide services to a third party; and
(12) Any power of attorney which is currently effective and
outstanding, other than powers of attorney which are required by law or
which have been granted pursuant to requirements of applicable state
insurance or securities rules and regulations.
(2) All of the material Contracts are valid, binding and enforceable
against the parties thereto in accordance with their terms and are in full force
and effect, subject to the effect of any applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors' rights generally and
subject, as to enforceability, to the effect of general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law). The Company is not, and to the best of the knowledge of the
Seller and the Company, no other party thereto is, in or claimed to be in
material breach or material default under any material Contract, and no event
has occurred which (after notice or lapse of time or both) would become a
material breach or material default under or would permit modification,
cancellation, acceleration or termination of, any material Contract or result in
the creation of any material Encumbrance (other than Permitted Encumbrances)
upon, or any Person obtaining any right to acquire, any Properties, assets or
rights of the Company. There are no unresolved disputes under any material
Contract. No material Contract contains any provision providing that any other
party thereto may terminate or cancel the same by reason of the transactions
contemplated by this Agreement.
SECTION 1.28. Employee Benefit Matters.
------------------------
(1) Set forth in Section 3.23(a) of the Disclosure Schedule is a
complete and correct list of all retirement, pension, savings, profit-sharing,
bonus, incentive compensation, deferred compensation, stock option or stock
compensation, welfare benefit, severance or termination, retiree medical, dental
or life insurance, supplemental retirement, employment or consulting agreements
and other material contracts and arrangements (including automobile rental or
usage arrangements) maintained or contributed to by the Company, or covering
employees, former employees or independent contractors of the Company
("Employees") with respect to their employment with the Company, including, but
---------
not limited to, "employee benefit plans" within the meaning of Section 3(3) of
ERISA (each, a "Plan", and collectively, the "Plans"). Each Plan is in writing
---- -----
and true and complete copies of the following items relating to each Plan, where
applicable, have heretofore been made available to the Purchaser: (i) the Plan
and any trust, custodial or other funding agreement, including all amendments
thereto; (ii) the
31
<PAGE>
three most recent actuarial reports and annual reports (Forms 5500) filed with
the Internal Revenue Service ("IRS"); (iii) the most recent determination
---
letters issued by the IRS; (iv) the most recent summary plan descriptions,
summary of material modifications to such summary plan descriptions and all
material Employee communications relating to such Plans distributed within the
last 12 months; and (v) the three most recent custodial or trustee reports or
other financial statement for funded Plans.
(2) None of the Plans is a multiemployer plan, within the meaning of
Section 3(37) or 4001(a)(3) of ERISA (a "Multiemployer Plan") or a single
------------------
employer plan, within the meaning of Section 4001(a)(15) of ERISA, for which the
Company could incur liability under Section 4063 or 4064 of ERISA (a "Multiple
--------
Employer Plan").
- -------------
(3) Each of the Plans is and has been maintained and administered in
compliance with the applicable provisions of ERISA, the Internal Revenue Code,
and all other applicable Federal or state laws and regulations. Each Plan
intended to be qualified under Section 401(a) of the Internal Revenue Code is so
qualified and has either received a favorable determination letter from the IRS,
or is in the process of applying for such a determination letter, with respect
to the Plan and all amendments, and the Seller and the Company are not aware of
any circumstances likely to result in revocation of any such favorable
determination letter or, if applicable, denial of such favorable determination
letter. There is no pending, anticipated or threatened litigation, claim,
action or proceeding relating to the Plans, other than claims for benefits in
the ordinary course. Neither the Seller nor the Company nor any fiduciary of
any Plan has engaged in a transaction with respect to any Plan which could
subject the Company to any (i) Tax or penalty imposed by either Section 4975 or
4976 of the Internal Revenue Code or Section 502 of ERISA, or (ii) liability
under Section 409 of ERISA.
(4) No liability under Subtitle C or D of Title IV of ERISA has been
incurred and not satisfied and no condition exists which presents a material
risk that liability would be incurred by the Company, in each case with respect
to any ongoing, frozen or terminated plan currently or formerly maintained or
contributed to by the Company or any Person which would be now or at the
applicable time considered a member of the Company's "controlled group" within
the meaning of Section 400(a)(14) of ERISA (an "ERISA Affiliate"), and (ii) no
---------------
withdrawal liability has been incurred and not satisfied under Subtitle E of
Title IV of ERISA or is anticipated (regardless of whether based on
contributions of an ERISA Affiliate or the Company) which could result in a
liability to the Company. No Notice of Reportable Event (within the meaning of
Section 4043 of ERISA) has been required to be filed for any Plan within the
three years preceding the Closing Date. No distribution has been made from a
Plan that does not comply with Treasury Regulation (S)1.401(a)(4)-5(b).
(5) All contributions required to be made on or prior to the Closing
Date under the terms of any Plan or required by applicable law have been or will
be timely made. All such contributions to the Plans, and all payments under the
Plans, except those to be made from
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a trust qualified under Section 401(a) of the Internal Revenue Code, for any
period ending before the Closing Date that are not yet, but will be, required to
be made, are properly accrued and reflected on the Reference Financial
Statement. No Plan or any "employee benefit plan' (within the meaning of Section
3(3) of ERISA) of an ERISA Affiliate (an "Affiliate Plan") has an "accumulated
--------------
funding deficiency" (whether or not waived) within the meaning of Section 302 of
ERISA or Section 412 of the Internal Revenue Code and neither the Company nor
any ERISA Affiliate has an outstanding funding waiver.
(6) Under each Plan which is a "single employer plan," within the
meaning of Section 4001(a)(15) of ERISA, as of the last day of the Plan year
ending in December 1997, the "current liability", within the meaning of Section
412(l)(7) of the Internal Revenue Code (as determined on the basis of the
actuarial assumptions contained in the Plan's most recent actuarial valuation),
did not exceed the then current fair market value of the assets of such Plan and
there has been no material change in the financial condition of such Plan since
the last day of such Plan year. The information provided to the actuaries for
use in preparing any Plan's actuarial valuation was complete and accurate in all
respects and neither the Seller nor the Company have any reason to believe that
the conclusions expressed in those valuations are incorrect or incomplete. Each
Plan that is a "defined benefit plan" (as defined by Section 3(35) of ERISA)
could be terminated at the Closing Date in a standard termination under Section
4041(b) of ERISA without making any additional contributions to such Plan.
(7) No written or oral representations have been made to any
Employee of the Company, promising or guaranteeing any payment or funding for
the continuation of medical, dental, life or disability coverage for any period
of time beyond the end of the current Plan year or beyond the termination of an
Employee's employment, except to the extent of coverage required under COBRA.
(8) Each of the Plans which is a "group health plan" within the
meaning of Section 4980B of the Internal Revenue Code has been administered in
material compliance with Title 1, Subtitle B, Part 6 of ERISA and Section 4980B
of the Internal Revenue Code and the regulations thereunder ("COBRA"), and there
-----
has been no failure to provide continuation coverage under any Plan or Affiliate
Plan which is a group health plan, as required by the foregoing provisions of
the Internal Revenue Code and ERISA.
(9) Except as set forth in Section 3.23(i) of the Disclosure
Schedule, the Company does not have any formal plan or express or implied
commitment to create any additional plan, policy, agreement or arrangement that
would affect any Employee, or modify, change or terminate any existing Plan,
other than with respect to a modification or change required by ERISA or the
Internal Revenue Code or applicable law.
(10) All benefits earned as of the Reference Date that will be
payable after the Closing Date under any Plan providing for deferred
compensation, including, but not limited to,
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benefits payable under any Plan providing supplemental executive benefits to a
select group of highly compensated employees or any "top hat" plan, program or
arrangement, and any Employee service and/or bonus awards (including without
limitation, awards under any incentive compensation plan), are properly accrued
and reflected on the Reference Financial Statement.
(11) Except as set forth in Section 3.23(k) of the Disclosure
Schedule, no Plan is a severance or parachute pay plan, policy, arrangement or
agreement, and no Plan provides benefits similar to those provided under a
severance or parachute pay plan, policy or arrangement.
(12) Except as set forth in Section 3.23(l) of the Disclosure
Schedule, no Plan is a stay-bonus agreement or arrangement, retention agreement
or similar "pay-to-stay" plan, program, arrangement or agreement; there are no
obligations pursuant to any Plan with respect to a stay-bonus agreement or
arrangement, retention agreement or similar "pay-to-stay" plan, program,
arrangement or agreement; and no Plan provides benefits as a result of or in
connection with the consummation of the transactions contemplated in this
Agreement.
(13) No benefit under any Plan or agreement between the Company or
the Seller and an Employee will be triggered or become accelerated, vested or
payable by reason of this Agreement or any transaction contemplated hereby.
(14) Other than the Plans under which there are accrued but unpaid
benefits, which are listed on Section 3.23(n) of the Disclosure Schedule, but
only to the extent of such accruals, all of the Plans are terminable by the
Purchaser after the Closing without any payment or penalty.
(15) Section 3.23(o) of the Disclosure Schedule sets forth all
payments or benefits (whether or not in cash) which will be earned by the
Employees through the Closing Date by reason of the Plans listed on Section
3.23(n) of the Disclosure Schedule, assuming that all such Employees are
employed by the Company on the Closing Date.
SECTION 1.29. Labor Matters.
-------------
(1) Except as set forth in Section 3.24 of the Disclosure Schedule,
(i) there are no controversies pending or, to the best knowledge of the Seller
and the Company, threatened, between the Company and any of its employees, which
controversies have had or are reasonably likely to have a Material Adverse
Effect; (ii) the Company is not a party to any collective bargaining agreement
or other labor union contract applicable to persons employed by the Company and
no application for certification of a collective bargaining agent is pending or,
to the best of the knowledge of the Seller and the Company, threatened; (iii)
there are no grievances outstanding against the Company under any such agreement
or contract; (iv) there are no unfair labor practice complaints pending against
the Company before the National Labor Relations
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Board; and (v) the Seller and the Company have no knowledge of any pending or
threatened strikes, slowdowns, work stoppages, lockouts, or threats thereof, by
or with respect to any Employees.
(2) The Company has, in the ordinary course consistent with past
practice, paid or made provisions for the payment of all salaries and accrued
wages to be made with respect to the Employees and has complied in all material
respects with all laws relating to the employment and safety of labor, including
provisions relating to wages, hours, benefits, collective bargaining, the
payment of social security and similar Taxes, and all applicable occupational
safety and health acts, laws and regulations. The Company has not had a "plant
closing" or "mass layoff" within the meaning of the Worker Adjustment and
Retraining Notification Act, 29 U.S.C. (S)(S) 2101 et seq. (the "WARN Act"). No
------ --------
employees (within the contemplation of the WARN Act) of the Company have
suffered, may be deemed to have suffered or will have suffered an "employment
loss" as defined in the WARN Act within the 90 days prior to the date of this
Agreement or prior to the Closing Date. The Company is not liable for any
arrears in withholding or any Taxes or penalties for any material failure to
comply with any of the foregoing.
SECTION 1.30. Taxes. Except as set forth in Section 3.25 of the
-----
Disclosure Schedule:
(1) All Tax Returns required to be filed in respect of the Company or
any affiliated, combined, consolidated, unitary or similar group of which the
Company was or is a member ("Relevant Group") that are due, taking into account
--------------
timely extensions of the filing period, on or prior to the Closing Date have
been duly and timely filed (or will have been duly and timely filed by the
Closing Date) in accordance with all applicable laws and each such Tax Return is
correct, accurate and complete in all material respects. The Company or the
member of the Relevant Group has (or will have by the Closing Date) paid, or has
(or will have by the Closing Date) made provision for Taxes (as opposed to any
reserve for deferred Taxes to reflect timing differences between book and Tax
income) on its books in accordance with GAAP for the payment of, all Taxes,
whether or not yet due and payable and whether or not disputed, in respect of
the periods covered by Tax Returns which are due on or before the Closing Date,
and has (or will have by the Closing Date) accrued or otherwise adequately
reserved prorated liabilities on its books in accordance with GAAP for the
payment of all Taxes for periods beginning before and ending after the Closing
Date for which Tax Returns have not yet been filed.
(2) The Company has made all withholdings of Taxes that it reasonably
determined were required to be made under all applicable federal, state, local
and foreign Tax laws and regulations on or before the Closing Date in connection
with payments made to any employee, former employee, creditor, shareholder,
affiliate, customer or supplier, and to the extent required to be paid, such
withholdings have been paid to the respective governmental agencies.
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(3) There have been made available to the Purchaser true and
complete copies of all material Tax Returns, as may be relevant to the Company
since January 1, 1993.
(4) No deficiencies, adjustments, or changes in assessments for any
Taxes have been proposed, asserted or assessed against the Company. All
liabilities in respect of federal income Taxes of the Company have been finally
determined for all taxable years prior to and including the years set forth in
Section 3.25(d) of the Disclosure Schedule. There is no action, suit,
proceeding, audit, investigation or claim pending or, to the best knowledge of
the Seller and the Company, threatened, in respect of any Taxes for which the
Company may become liable, including as a transferee of the assets of, or
successor to, any entity. All deficiencies proposed as a result of any audits
have been paid or finally settled and no deficiencies have been proposed in the
course of any pending audit. No issue has been raised during the past five years
by the IRS in any audit of the Company or its predecessor which, by application
of similar principles, could be expected to result in a material proposed
deficiency for any period not yet audited or for periods under audit.
(5) Except as set forth in Section 3.25(e) of the Disclosure
Schedule, the Company has not executed or filed with the IRS or any other taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes for which the
Company may be liable.
(6) The Company qualifies as an insurance company under the Internal
Revenue Code and neither the Seller nor the Company has received any notice or
other communication relating to or affecting such qualification of the Company
as an insurance company.
(7) Except as set forth in Section 3.25(g) of the Disclosure
Schedule, from and after the Company's formation no entity has joined in filing
a consolidated, combined, affiliated, unitary or similar return with the Company
and the Company has not filed or consented to the filing of any foreign, federal
or state consolidated, combined, affiliated, unitary or similar return with any
entity.
(8) The Company is not a partner in any partnership, joint venture
or other arrangement that is treated as a partnership for Tax purposes other
than certain mandatory state insurance associations and mandatory state
reinsurance pools.
(9) There are no material Encumbrances for Taxes upon the assets of
the Company except Encumbrances for Taxes not yet due and payable.
(10) Neither the Seller nor the Company has filed a consent pursuant
to Section 341(f) of the Internal Revenue Code, or agreed to have Section
341(f)(2) of the Internal Revenue
36
<PAGE>
Code apply to any disposition of a subsection (f) asset (as defined in Section
341(f)(4) of the Internal Revenue Code) owned by the Seller or the Company.
(11) The Company has made all payments of estimated Taxes that are
required to be made prior to the Closing Date.
(12) The Company has not made any payments, nor is it obligated to
make any payments, nor is it a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Internal Revenue Code.
(13) None of the assets of the Company constitutes tax-exempt bond
financed property or tax-exempt use property, within the meaning of Section 168
of the Internal Revenue Code. The Company is not a party to any "safe harbor
lease" that is subject to the provisions of Section 168(f)(8) of the Internal
Revenue Code as in effect prior to the Tax Reform Act of 1986, or to any "long-
term contract" within the meaning of Section 4.60 of the Internal Revenue Code.
(14) There are no accounting method changes, and, to the best
knowledge of the Seller and the Company, there are no proposed or threatened
accounting method changes of the Company that could reasonably be expected to
give rise to an adjustment under Section 481 of the Internal Revenue Code for
periods after the Closing Date.
(15) The Company has not received any written ruling of a taxing
authority related to Taxes or, since its formation, entered into any material
written and legally binding agreement with a taxing authority relating to Taxes
except as regards the extension of any statute of limitations.
(16) The Company has no liability for Taxes of any Person (i) under
Section 1.1502-6 of the Treasury Regulations (or any similar provision of state,
local or foreign Law), (ii) as a transferee or successor by operation of law, or
(iii) by contract. The Company is not a party to any Tax allocation or sharing
agreement, other than the Tax Sharing Agreement.
(17) The Company has not participated in or cooperated with an
international boycott within the meaning of Section 999 of the Internal Revenue
Code.
(18) Section 3.25(r) of the Disclosure Schedule contains a list of
all states, territories and jurisdictions (foreign or domestic) to which any tax
is properly payable by the Company. No claim has ever been made by any taxing
authority in a jurisdiction in which the Company does not file tax returns that
it is or may be subject to Tax in that jurisdiction.
SECTION 1.31. Agents. To the best of Seller's knowledge, all
------
Persons through whom the Company has placed or sold reinsurance and insurance
are duly licensed (to the extent such licensing is required) to sell or place
reinsurance and insurance in the
37
<PAGE>
jurisdictions where they do so on behalf of the Company. Except as set forth in
Section 3.26 of the Disclosure Schedule, no single agent, broker, intermediary
or producer generated more than $500,000 of the aggregate gross written premium
of the Company during the years ended December 31, 1997 or December 31, 1998.
Except as otherwise set forth in Section 3.26 of the Disclosure Schedule, no
Person listed on Section 3.26 of the Disclosure Schedule has given or been given
written notice of termination or, to the knowledge of the Seller or the Company,
threatened or been threatened with termination, or threatened or been threatened
with a substantial reduction in the amount of premiums to be written by such
Person on behalf of the Company. Except as set forth Section 3.26 of the
Disclosure Schedule, the Company is not a party to any managing general agency
contracts or other similar arrangements. The Company is not a party to any
fronting or similar agreement to place or sell reinsurance or insurance for any
other Person.
SECTION 1.32. Accounts with Financial Institutions. Section 3.27
------------------------------------
of the Disclosure Schedule sets forth a list of all safe deposit boxes, active
bank accounts and other time or demand deposits of the Company, together with
the names and addresses of the applicable financial institution or other
depository, the account number and the names of all persons authorized to draw
thereon or who have access thereto.
SECTION 1.33. Minute Books; Stock Books; Officers and Directors.
-------------------------------------------------
The minute books of the Company which have been made available to the Purchaser
for its inspection contain true and complete records of all meetings and
consents in lieu of meetings of the Board of Directors (and any committee
thereof) of the Company and its shareholders since incorporation and accurately
reflect all transactions referred to in such minutes and consents in lieu of
meetings. The stock books of the Company which have been made available to the
Purchaser for its inspection are true and complete. Attached as Section 3.28 of
the Disclosure Schedule is a true and correct list of the officers and directors
of the Company as of the date of this Agreement.
SECTION 1.34. Continuing Business Relationships. Except as set
---------------------------------
forth in Section 3.29 of the Disclosure Schedule, to the best of the knowledge
of the Seller and the Company, no insured, reinsured, retrocedent or
retrocessionaire of the Company will cease to do business or materially
adversely change its volume of business with the Company after the consummation
of the transactions contemplated hereby.
SECTION 1.35. Year 2000.
---------
(1) Section 3.30 of the Disclosure Schedule sets forth a description
of the Seller's plans to evaluate and implement solutions to Year 2000 issues
confronting the Seller and its operations, including those of the Company, and
the remediation costs for hardware and software problems.
38
<PAGE>
(2) Based on its review and study of Year 2000 issues as reflected in
Schedule 3.30, the Seller believes that neither Year 2000 problems nor
commercially reasonable and foreseeable remediation costs have had, or will
have, a Material Adverse Effect with respect to either the Company or the
Seller.
SECTION 1.36. Brokers. Except for Advest, no broker, finder or
-------
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Seller. The Seller is
solely responsible for the fees and expenses of Advest.
SECTION 1.37. Disclosure. No representation or warranty or other
----------
statement made by the Seller in this Agreement or in the Disclosure Schedule
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
herein or therein, in light of the circumstances under which they were made, not
misleading.
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
As an inducement to the Seller to enter into this Agreement, the
Purchaser hereby represents and warrants to the Seller as follows:
SECTION 1.38. Incorporation and Authority of the Purchase. The
-------------------------------------------
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of New York and has all necessary corporate
power and authority to own, lease and operate its properties, to conduct its
business as now being conducted, to enter into this Agreement and each other
agreement and instrument required to be executed and delivered by the Purchaser
pursuant hereto, to carry out its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance by the Purchaser of this Agreement and each other
agreement and instrument required to be executed and delivered by the Purchaser
pursuant hereto, and the consummation by the Purchaser of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on the part of
the Purchaser are necessary to authorize the foregoing. This Agreement has been,
and at the Closing the other agreements and instruments required pursuant hereto
and to which the Purchaser is a party will have been, duly and validly executed
and delivered by the Purchaser, and (assuming the authorization, execution and
delivery by the Seller, to the extent it is a party thereto), each of this
Agreement and such other documents at the Closing will constitute a legal, valid
and binding obligation of the Purchaser enforceable against the Purchaser in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency,
39
<PAGE>
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to the effect of general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
SECTION 1.39. No Conflict. Assuming all consents, approvals,
-----------
authorizations, orders and other actions described in Section 4.04 have been
obtained and/or taken, all filings and other notifications described in Section
4.04 have been made, and except as may result from any facts or circumstances
relating solely to the Seller, the execution, delivery and performance of this
Agreement by the Purchaser, the purchase of the Shares pursuant to this
Agreement and the consummation by the Purchaser of the transactions contemplated
hereby do not and will not (a) violate or conflict with the Certificate of
Incorporation or By-laws (or other similar applicable documents) of the
Purchaser, (b) conflict with or violate any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award applicable to the
Purchaser, or (c) result in any breach of, or constitute a default (or event
which with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of the Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument relating to such assets or properties to which the Purchaser is
a party or by which any of such assets or properties is bound or affected, which
conflict, violation, breach or default in the case of clauses (a), (b) and (c)
would have, or is reasonably likely to have, a material adverse effect on the
ability of the Purchaser to consummate the transactions contemplated by this
Agreement.
SECTION 1.40. Absence of Litigation. No claim, action, proceeding
---------------------
or investigation is pending against the Purchaser or any of its Affiliates which
seeks to materially delay or prevent the consummation of the transactions
contemplated hereby or which would be reasonably likely to adversely affect or
restrict the Purchaser's ability to consummate the transactions contemplated
hereby.
SECTION 1.41. Consents and Approvals. The execution and delivery
----------------------
of this Agreement and each other agreement and instrument required to be
executed by the Purchaser, the purchase of the Shares pursuant to this Agreement
and the consummation by the Purchaser of the transactions contemplated hereby do
not, and the performance of this Agreement and each other agreement and
instrument required to be executed by the Purchaser will not, require any
consent, approval, authorization, order or other action by, or filing with or
notification to, any Governmental Authority, except (a) as described in a
writing delivered to the Seller by the Purchaser on the date hereof, (b) the
notification requirements of the HSR Act, (c) the approval of the Massachusetts
Insurance Division, and (d) filings under the Exchange Act.
SECTION 1.42. Investment Purpose. The Purchaser is acquiring the
------------------
Shares solely for its own account and not with a view to, or for offer or sale
in connection with, any
40
<PAGE>
distribution thereof in any transaction which would be in violation of the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
SECTION 1.43. Brokers. Except for Gill and Roeser, Inc., no
-------
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Purchaser. The
Purchaser is solely responsible for the fees and expenses of Gill and Roeser,
Inc.
ADDITIONAL AGREEMENTS
SECTION 1.44. Conduct of Business Prior to the Closing.
----------------------------------------
(1) Seller covenants and agrees that, between the date hereof and the
Closing Date, it shall cause the Company to conduct its Business in the ordinary
course and consistent with its prior practice except as described in Section
5.01(a) of the Disclosure Schedule or except as otherwise specifically provided
in this Agreement.
(2) Except as otherwise specifically provided in this Agreement, the
Seller covenants and agrees that, prior to the Closing and without making any
commitment on Purchaser's behalf, it will cause the Company (i) to use all
commercially reasonable efforts to preserve substantially intact its business
organization, goodwill, Permits and insurance licenses, (ii) to keep available
to the Purchaser the services of Current Employees, (iii) to comply in all
material respects with all laws, statutes, ordinances, rules and regulations
applicable to the Company, (iv) to take all commercially reasonable steps to
preserve the current relationships of the Company with its brokers, reinsurance
intermediaries, ceding companies, reinsurers, agents, managing general agents,
suppliers and other persons with which the Company has significant business
relationships, and (v) to perform its obligations under all Reinsurance
Agreements, Contracts and commitments to which it is a party or by or to which
it is bound or subject.
(3) The Seller covenants and agrees that prior to the Closing Date,
it will cause the Company to maintain its books and records in the usual,
regular and ordinary manner consistent with past practices; to use commercially
reasonable efforts to continue in full force and effect the policies of
insurance listed in Section 3.19 of the Disclosure Schedule or comparable
substitute policies and will promptly notify Purchaser of any cancellation or
non-renewal of such insurance; and to use commercially reasonable efforts to
maintain all of its assets and Properties in good repair, working order and
operating condition (subject only to ordinary wear and tear).
41
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(4) The Seller covenants and agrees that it will not allow the
Company to amend, commute, terminate or waive any of its rights under any
Reinsurance Agreement pursuant to which the Company has ceded or transferred any
portion of its obligations or liabilities, except as otherwise contemplated by
Section 5.13.
(5) The Seller covenants and agrees to cause the Company to commence
preparation of and, consistent with past practice and on a timely basis, if
required prior to the Closing Date, file with or submit to the Massachusetts
Insurance Division and any other insurance department or other regulatory
authority with which the Company is required to make such filings or
submissions, and, if filed prior to the Closing Date, deliver to the Purchaser
true and complete copies of, the quarterly statutory statement for each quarter
of 1999 ended prior to the Closing Date, together with all related notes,
exhibits and schedules thereto. All such quarterly statements filed with or
submitted to the Massachusetts Insurance Division and any other insurance
department, or regulatory authority (i) shall be prepared from the books of
account and other financial records of the Company, (ii) shall be filed with or
submitted to the Massachusetts Insurance Division, and such other insurance
departments and regulatory authorities, on forms prescribed or permitted
thereby, (iii) shall be prepared in accordance with SAP applied on a basis
consistent with the past practices of the Company (except as set forth in the
notes, exhibits or schedules thereto), and shall comply on their respective
dates of filing or submission with the Massachusetts Insurance Code and the laws
of such other jurisdictions, (iv) shall present fairly the statutory assets,
liabilities, capital and surplus, results of operations and cash flows of the
Company as of the dates thereof or for the periods covered thereby (subject to
normal estimation of accruals and reserves and normal year-end audit
adjustments), and (v) shall not use any accounting practices that are permitted
than prescribed by the Massachusetts Insurance Division.
(6) The Seller covenants and agrees that, prior to the Closing, it
will not permit the Company to amend its Charter or By-laws or merge or
consolidate or sell all or substantially all of its assets (other than ordinary
course trading of its investment portfolio consistent with its investment
guidelines and past practice), or obligate itself to do so, with or into or to
any other entity, without the prior written consent of the Purchaser.
(7) Except as otherwise specifically permitted by this Agreement, the
Seller covenants and agrees that, without the prior written consent of the
Purchaser, it will not permit the Company or any Subsidiary thereof prior to the
divestiture thereof pursuant to Section 5.14(a) hereof), prior to the Closing,
to:
(1) change in any material respect its accounting methods, principles
or practices except as required by SAP or GAAP or change in any material
respect its underwriting, reinsurance, marketing, establishment of
reserves, investment or claims adjustment policies or practices;
42
<PAGE>
(2) declare, set aside or pay any dividend or other distribution
(whether in cash, stock, property or any combination thereof) in respect of
the Shares or any other securities or redeem, repurchase or otherwise
acquire any equity securities;
(3) make any payment pursuant to the Tax Sharing Agreement, other
than a payment consistent with past practice that is related to the Tax
liability of the Company and (i) with respect to payments for periods (or
portions thereof) beginning after the Reference Date which has been
consented to by Purchaser, which consent may not be unreasonably delayed or
withheld and (ii) with respect to payments for the periods (or portions
thereof) that end on or before the Reference Date, that are reflected in
the Tax Reserve;
(4) revalue any of its assets, including, without limitation, writing
off notes or accounts receivable, other than in the ordinary course of
business consistent with past practice;
(5) establish or increase any bonus, insurance, severance,
termination, deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of stock options,
stock appreciation rights, performance awards, or restricted stock awards),
stock purchase or other employee benefit plans, or otherwise increase the
compensation payable or to become payable to any of the Employees or any
directors, officers or employees of the Company, except salary increases as
may be required by law, and salary increases to non-officers, in the
ordinary course of business consistent with past practice and not in excess
of five percent (5%) per annum in the aggregate;
(6) enter into any employment, bonus, incentive or defined
compensation, severance or termination agreement with any of the Employees
or any directors, officers, other employees or consultants or establish,
adopt or enter into any collective bargaining agreement or adopt or amend
any Plan;
(7) create, incur, assume, maintain or permit to exist any
Encumbrances on any Property of the Company other than Permitted
Encumbrances;
(8) create, incur or assume any indebtedness for borrowed money,
including obligations in respect of capital leases, or guarantee any
indebtedness for borrowed money or any other obligation of any other
Person;
(9) subject to Section 5.14(b), pay or discharge any material claim,
liability or Encumbrance (whether absolute, accrued, contingent or
otherwise), or waive any right,
43
<PAGE>
other than in the ordinary course of business consistent with past practice
or pursuant to binding contractual obligations of the Company in existence
on the date hereof;
(10) hire any new employees, agents or consultants, except for those
earning less than $30,000 per annum who are hired in the ordinary course of
business consistent with past practice to replace departed employees;
(11) authorize or make any capital expenditure in excess of an
aggregate of $30,000;
(12) issue or agree to issue any shares of its capital stock or
securities exchangeable for or convertible into such capital stock;
(13) become a party to any agreement (other than Reinsurance
Agreements in the ordinary course of business consistent with past
practice) which, if it existed on the date hereof, would be required to be
listed in the Disclosure Schedule, or, other than in the ordinary course of
business and consistent with past practice, amend or terminate any existing
Reinsurance Agreement or, other than in the ordinary course of business and
consistent with past practice, amend or terminate any other Contract;
(14) subject to Section 5.14(a), dispose of or acquire any assets
other than in the ordinary course of business for fair value and consistent
with past practice;
(15) make any investments in noninvestment grade securities;
(16) abandon, modify, waive, terminate or otherwise change any of the
insurance licenses described in Section 3.02 of the Disclosure Schedule or
Permits of the Company, except as may be required by law or by any
applicable insurance or other regulatory authority;
(17) enter into any commutation of any ceded Reinsurance Agreement;
(18) make any loan, advance or capital contribution to or investment
by the Company in any Person, except in the ordinary course of business and
consistent with past practice;
(19) enter into any transaction or commitment made, or any contract or
agreement between the Company on the one hand, and the Seller or any of its
Affiliates on the other hand;
(20) consider or adopt a plan of complete or partial liquidation,
dissolution, rehabilitation, restructuring, recapitalization, re-
domestication or other reorganization;
44
<PAGE>
(21) enter into any joint venture, partnership, managing general
agency or similar arrangement with any Person;
(22) settle or compromise any material claims against the Company
(other than the payment of claims on insurance policies or under
Reinsurance Agreements, in each case in the ordinary course of business
consistent with past practice);
(23) take any action or course of action inconsistent with its
compliance with the covenants and agreements contained in this Agreement;
(24) take or agree to commit to take any action that would make any
representation or warranty of the Seller contained herein inaccurate in any
material respect at the Closing or omit to take any action necessary to
prevent any such representation or warranty from being inaccurate in any
material respect at such time; and
(25) transfer to or from the Seller or any Subsidiary of the Company
any Property or asset relating to the Business, subject, however, to the
------- -------
second sentence of Section 5.14(a) hereof.
SECTION 1.45. Access to Information. From the date hereof until
---------------------
the Closing, upon reasonable notice, the Seller shall and shall cause its and
the Company's officers, directors, employees, auditors and agents to, (i) afford
the officers, employees and authorized agents and representatives of the
Purchaser reasonable access, during normal business hours and upon reasonable
advance notice, to the offices, properties, books and records of the Company and
to its and the Company's respective officers, employees, agents, accountants and
actuaries and (ii) furnish to the officers, employees and authorized agents and
representatives of the Purchaser such additional financial and operating data
and other information regarding the assets, properties, goodwill and Business of
the Company as are available to the Seller or as may be prepared or compiled by
the Seller or the Company without undue burden or expense as the Purchaser may
from time to time reasonably request. No investigation or access to information
pursuant to this Section 5.02 shall affect any representation or warranty made
by the Seller to the Purchaser hereunder or otherwise affect the rights and
remedies available to the Purchaser hereunder. The Confidentiality Agreement
shall apply to all information, materials and documents provided or made
available to the Purchaser or its officers, employees or authorized agents or
representatives under this Section 5.02.
SECTION 1.46. Books and Records.
-----------------
(1) The Purchaser agrees that it shall preserve and keep all material
books and records of the Company for the period up to and including the Closing
Date in the possession of the Purchaser or the Company for a period of at least
seven years from the Closing Date. After
45
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such seven-year period, before the Purchaser or the Company shall dispose of any
of such books and records, at least 90 calendar days' prior written notice to
such effect shall be given by the Purchaser to the Seller, and the Seller shall
be given an opportunity, at its cost and expense, to remove and retain all or
any part of such books and records as the Seller may select. During such seven-
year period, duly authorized representatives of the Seller shall, upon
reasonable notice, have access thereto during normal business hours to examine,
inspect and copy such books and records, with any out-of-pocket costs being
borne by the Seller, upon providing to the Purchaser in reasonable detail the
basis upon which such requested books and records are relevant to the inquiry,
and such access shall be limited to such relevant books and records.
(2) If, in order properly to prepare documents required to be filed
with Governmental Authorities or their financial statements, it is necessary
that any party hereto or any successors be furnished with additional information
relating to the Company or the Business, and such information is in the
possession of the other party hereto, such party agrees to use all reasonable
efforts to furnish such information to such other party, at the cost and expense
of the party being furnished such information upon the furnishing by the
requesting party the reason such information is necessary, and excluding from
the Purchaser's and from the Seller's obligations any information which is
subject to a confidentiality agreement with any third Person.
SECTION 1.47. Confidentiality. The terms of the letter agreement,
---------------
agreed and consented to by the Purchaser on September 11, 1998, between the
Seller and the Purchaser (the "Confidentiality Agreement") are hereby
-------------------------
incorporated by reference and shall continue in full force and effect until the
Closing, at which time such Confidentiality Agreement and the obligations of the
Purchaser under this Section 5.04 shall terminate; provided, however, that the
-------- -------
Confidentiality Agreement shall not terminate in respect of that portion of such
confidential information relating exclusively to matters not related to the
transactions contemplated by this Agreement. If this Agreement is, for any
reason, terminated prior to the Closing, the Confidentiality Agreement shall
continue in full force and effect in respect of such confidential information.
After the Closing Date, the Seller shall keep all non-public information
relating to the Company confidential on the same terms as set forth for the
Purchaser in the Confidentiality Agreement.
SECTION 1.48. Regulatory and Other Authorizations; Consents.
---------------------------------------------
(1) Each party hereto will use all reasonable efforts to obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
that may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement, (including, without
limitation, any required approvals of the Massachusetts Insurance Division or
the Pennsylvania Insurance Department), and will cooperate fully with the other
parties in promptly seeking to obtain all such authorizations, consents, orders
and approvals, subject to the proviso in Section 5.05(b). Each party hereto
46
<PAGE>
agrees to make an appropriate filing of a Notification and Report Form pursuant
to the HSR Act with respect to the transactions contemplated hereby as soon as
reasonably practicable after the date hereof and to supply promptly any
additional information and documentary material that may be requested pursuant
to the HSR Act. The Purchaser agrees to promptly make its initial filing
pursuant to Massachusetts Insurance Code Section 206 and Regulation 211 CMR 7
under the Massachusetts Insurance Code (the "Form A Filing") upon the execution
-------------
of this Agreement and to supply promptly any additional information and
documentary material that may be requested by the Massachusetts Insurance
Division in connection therewith. The Purchaser agrees to provide a draft of the
Form A Filing to the Seller for its review and to consult with the Seller
relating to any issues arising as a result of the Seller's review, prior to the
submission of the Form A Filing by the Purchaser to the Massachusetts Insurance
Division; provided that such consultation does not delay the timely filing of
the Form A Filing or any amendments or supplements thereto and it being agreed
that the final determination as to the content of the Form A Filing or any
amendments or supplements thereto shall remain with the Purchaser. The Purchaser
agrees to provide the Seller with a copy of the Form A Filing and each amendment
or supplement thereto in final form upon the submission thereof to the
Massachusetts Insurance Division. The Seller and the Purchaser each agree to
make all other appropriate filings with the Massachusetts Insurance Division and
such other filings as may be required under the insurance laws of any other
state or jurisdiction in which the Company does business. The parties hereto
will not knowingly take any action that will have the effect of materially
delaying, impairing or impeding the receipt of any required approvals.
(2) The Seller agrees to promptly make, or cause the Company to make,
any filing required pursuant to Pennsylvania insurance law (the "Pennsylvania
------------
Filing") upon the execution of this Agreement and to supply promptly any
- ------
additional information and documentary material that may be requested by the
Pennsylvania Insurance Department in connection therewith. The Seller agrees to
provide a draft of the Pennsylvania Filing to the Purchaser for its review and
to consult with the Purchaser relating to any issues arising as a result of the
Purchaser's review, prior to the submission of the Pennsylvania Filing by the
Seller to the Pennsylvania Insurance Department; provided that such consultation
does not delay the timely filing of the Pennsylvania Filing or any amendments or
supplements thereto and it being agreed that the final determination as to the
content of the Pennsylvania Filing or any amendments or supplements thereto
shall remain with the Seller. The Seller agrees to provide the Purchaser with a
copy of the Pennsylvania Filing and each amendment or supplement thereto in
final form upon the submission thereof to the Pennsylvania Insurance Department.
(3) The Purchaser and the Seller will use all their respective
reasonable efforts to assist one another in obtaining the consents referred to
in Sections 8.01(d), 8.02(d) and, if any, the consents referred to in Sections
8.01(e) and 8.02(e), including, without limitation, providing to such parties
such financial statements and other financial information with respect to the
Purchaser as such parties may reasonably request, if and to the extent such
information may reasonably be required; provided, however, that neither the
-------- -------
Purchaser nor the Seller shall be
47
<PAGE>
obligated with respect to such assistance (i) to expend any funds except the
payment of the fees and expenses of any applicable attorneys, consultants or
other advisors retained by it and applicable filing fees or (ii) to take any
actions with respect to their respective businesses or the Business of the
Company which, in its reasonable judgement, is materially adverse.
SECTION 1.49. No Solicitation of Employees. For a period of three
----------------------------
years following the Closing and other than through ordinary help-wanted
advertising, (a) the Seller shall not, directly or indirectly, actively solicit
or induce any employee of the Purchaser or any of its subsidiaries or the
Company (including any Current Employee employed by the Seller, the Company or
any other Subsidiary of the Company following the Closing) to leave such
employment and become an employee of the Seller or any of its Affiliates and (b)
the Purchaser and the Company shall not, directly or indirectly, actively
solicit or induce any employee of the Seller or any Affiliate of the Seller to
leave such employment and become an employee of the Purchaser or any of its
Affiliates; provided, however, that nothing in this Section 5.06 shall prohibit
-------- -------
the Seller or any of its Affiliates or the Purchaser or any of its Affiliates
from employing any person who contacts them on his or her own initiative and
without any direct or indirect solicitation by the Seller or any of its
Affiliates or the Purchaser or any of its Affiliates, as the case may be.
SECTION 1.50. Use of Name. Anything herein to the contrary
-----------
notwithstanding, no interest in or right (except as permitted below) to use the
name "USF Re" or any derivation thereof or any logo, trademark or trade name
including such name (collectively, the "Retained Names and Marks") shall be
------------------------
retained by the Company following the Closing. The Purchaser shall cause the
Company to promptly file such documents as are necessary and appropriate to
change its corporate name so as not to contain "USF", including, without
limitation, amendments to the Charter of the Company, and amendments to all
filings made by the Company to qualify to do business as a foreign corporation
and amendments to all filings made by the Company with insurance regulatory
authorities in order to be licensed or authorized to write reinsurance or
insurance. Notwithstanding the foregoing, the Company shall be entitled,
without any payment therefor, (x) for a period of one hundred eighty days
following the Closing to use any materials existing on the Closing Date that
bear any Retained Name or Mark or any name, mark or logo similar thereto, in
each case when the removal of any Retained Name or Mark or any such similar
name, mark or logo would be impractical or to allow time for the ordering and
delivery of any new materials, which orders the Purchaser agrees to place as
promptly as practicable, and (y) for a period of eighteen months following the
Closing to use the name "USF Re Insurance Company" in connection with its
efforts to renew existing Reinsurance Agreements, including the use of such name
on such renewal contracts. The Purchaser agrees that the Seller shall have no
responsibility for claims by third parties arising out of or relating to the use
by the Company or the Purchaser of any Retained Name or Mark after the Closing,
and the Purchaser agrees to defend, indemnify and hold harmless the Seller from
any and all claims that may arise out of the use thereof by the Company or the
Purchaser whether or not in accordance with this Agreement (other than claims of
any third party relating to the Company's
48
<PAGE>
right to use any Retained Name or Mark, unless such use shall be materially
different from the use of the Retained Names and Marks by the Company prior to
the Closing).
SECTION 1.51. No Solicitation of Offers, Etc.
------------------------------
(1) The Seller shall not, nor shall it permit any of its subsidiaries
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its subsidiaries to, and it shall use
all commercially reasonable efforts to ensure that such persons do not, directly
or indirectly, (i) solicit, initiate or encourage (including by way of
furnishing information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes or is likely to lead
to any Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any Takeover Proposal; provided, however,
-------- -------
that if, at any time the Board of Directors of the Seller determines in good
faith, based on the advice of outside counsel, that it is necessary to do so in
order to comply with its fiduciary duties to the Seller's stockholders under
applicable law, the Seller may, in response to a Superior Proposal (as defined
in Section 5.08(b)) which was not solicited by it or which did not otherwise
result from a breach of this Section 5.08(a), and subject to providing prior
written notice of its decision to take such action to the Purchaser and
compliance with Section 5.08(c), (x) furnish information with respect to the
Seller and its subsidiaries to any person making a Superior Proposal pursuant to
a customary confidentiality agreement and (y) participate in discussions or
negotiations regarding such Superior Proposal. Without limiting the foregoing it
is understood that any violation of the restrictions set forth in the preceding
sentence by any director or officer of the Seller, the Company or any of the
Seller's Affiliates, or any investment banker, financial advisor, attorney,
accountant or other representative of the Seller, the Company or any of the
Seller's Affiliates, whether or not acting on behalf of the Seller, the Company
or any of the Seller's Affiliates, shall be deemed a breach of this Section 5.08
by the Seller. For purposes of this Agreement, "Takeover Proposal" means any
-----------------
inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 15% or more of the net
revenues, net income or assets of the Company, or 15% or more of any class of
equity securities of the Company, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Company, other than the transactions contemplated by this
Agreement, and provided further, that a "Takeover Proposal" shall include
----------------
any inquiry, proposal or offer from any Person relating to any direct or
indirect acquisition or purchase of a business that constitutes 15% or more of
the net revenues, net income or assets of the Seller, or 15% or more of any
class of equity securities of the Seller or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving the Seller but only if such inquiry, proposal or offer contemplates
that this Agreement shall be terminated or otherwise requires that the Company
be included in such transaction.
49
<PAGE>
(2) Except as expressly permitted by this Section 5.08, neither the
Board of Directors of the Seller nor any committee thereof shall (i) withdraw or
modify, or propose publicly to withdraw or modify, in a manner adverse to the
Purchaser, the approval or recommendation by such Board of Directors or such
committee of this Agreement and the transactions contemplated hereby, (ii)
approve or recommend, or propose publicly to approve or recommend, any Takeover
Proposal, or (iii) cause the Seller to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement (each,
an "Acquisition Agreement") relating to any Takeover Proposal. Notwithstanding
---------------------
the foregoing, in the event of any Superior Proposal, the Board of Directors of
the Seller may terminate this Agreement and, concurrently with or after such
termination, if it so chooses, cause the Seller to enter into any Acquisition
Agreement with respect to any Superior Proposal, and withdraw its approval and
recommendation of the transactions contemplated hereby and approve and recommend
to its stockholders a Superior Proposal, but only at a time that is after the
fifth business day following the Purchaser's receipt of written notice advising
the Purchaser that the Board of Directors of the Seller is prepared to accept a
Superior Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal. For purposes
of this Agreement, a "Superior Proposal" means any proposal made by a third
-----------------
party and approved by its respective Board of Directors to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
(i) more than 50% of the combined voting power of the shares of common stock of
the Seller or all or substantially all of the assets of the Seller, or (ii) all
of the Shares of the Company or all or substantially all the assets of the
Company, and, with respect to (i) and (ii), otherwise on terms which the Board
of Directors of the Seller determines in its good faith judgment (based on the
written advice of a financial advisor of nationally recognized reputation) to be
more favorable to the Seller's stockholders than this Agreement and the
transactions contemplated hereby, pursuant to a definitive unconditional
agreement and for which financing, to the extent required, is then committed.
(3) In addition to the obligations of the Seller set forth in
paragraphs (a) and (b) of this Section 5.08, the Seller shall immediately advise
the Purchaser orally and in writing of any request for information or of any
Takeover Proposal, the material terms and conditions of such request or Takeover
Proposal and the identity of the person making such request or Takeover
Proposal. The Seller will keep the Purchaser reasonably informed of the status
and details (including amendments or proposed amendments) of any such request or
Takeover Proposal.
(4) Nothing contained in this Section 5.08 shall prohibit the Seller
from taking and disclosing to its stockholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Seller's stockholders if, in the good faith judgment of the Board of Directors
of the Seller, after consultation with outside counsel, failure so to disclose
would be inconsistent with its obligations under applicable law.
50
<PAGE>
SECTION 1.52. Fees and Expenses.
-----------------
(1) Except as otherwise provided in Section 7.07 (Conveyance Taxes)
and in this Section 5.09, all costs and expenses, including, without limitation,
fees and disbursements of counsel, financial advisors and accountants, incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such costs and expenses, whether or not the
Closing shall have occurred.
(2) In the event that (i) a Takeover Proposal shall have been made
known to the Seller or any of its subsidiaries or has been made directly to its
stockholders generally or any person shall have publicly announced an intention
(whether or not conditional) to make a Takeover Proposal and thereafter this
Agreement is terminated by either the Purchaser or the Seller pursuant to
Section 10.01(b) or (ii) this Agreement is terminated (x) by the Seller pursuant
to Section 10.01(f) or (y) by the Purchaser pursuant to Section 10.01(d), then
the Seller shall promptly, but in no event later than two days after the date of
such termination, pay the Purchaser a fee equal to $3,500,000 (the "Termination
-----------
Fee"), payable by wire transfer of same day funds; provided, however, that no
- --- -------- -------
Termination Fee shall be payable to the Purchaser pursuant to clause (i) of this
paragraph (b) or pursuant to a termination by the Purchaser pursuant to Section
10.01(d) unless and until within 18 months of such termination the Seller or any
of its subsidiaries enters into any Acquisition Agreement or consummates any
Takeover Proposal (for the purposes of the foregoing proviso the terms
"Acquisition Agreement" and "Takeover Proposal" shall have the meanings assigned
to such terms in Section 5.08). The Seller acknowledges that the agreements
contained in this Section 5.09(b) are an integral part of the transactions
contemplated by this Agreement and constitute liquidated damages and not a
penalty, and that, without these agreements, the Purchaser would not enter into
this Agreement; accordingly, if the Seller fails promptly to pay the amount due
pursuant to this Section 5.09(b), and, in order to obtain such payment, the
Purchaser commences a suit which results in a judgment against the Seller for
the fee set forth in this Section 5.09(b), the Seller shall pay to Purchaser its
costs and expenses (including attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the prime rate as
reported in the Wall Street Journal on the date such payment was required to be
made. -------------------
SECTION 1.53. Investment Portfolio. Prior to the Closing Date, the
--------------------
Seller shall update the Investment Portfolio as of the end of each month and
shall deliver the updated Investment Portfolio to the Purchaser within ten
Business Days of the end of such month.
SECTION 1.54. Notice of Certain Matters.
-------------------------
(1) The Seller covenants and agrees to give prompt notice in writing
to the Purchaser of: (i) any information that indicates that any representation
or warranty of the Seller
51
<PAGE>
contained herein was not true and correct as of the date hereof or will not be
true and correct as of the Closing Date, (ii) the occurrence of any event which
will result, or has a reasonable prospect of resulting, in the failure to
satisfy a condition specified in Article VIII hereof, (iii) any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement, (iv) any notice of, or other communication relating to, any default
or event which, with notice or lapse of time or both, would become a default
under any Reinsurance Agreement or material Contract, (v) any change in the
officers or directors of the Company and (vi) any fact, condition or change
that, individually or in the aggregate, has resulted or is reasonably likely to
result in a Material Adverse Effect, with respect to the Seller or the Company.
(2) The Seller covenants and agrees to (i) promptly advise the
Purchaser of any fact, condition or change that, individually or in the
aggregate, has resulted or is reasonably likely to result in a Material Adverse
Effect on the Seller or the Company and (ii) notify the Purchaser of any
emergency or any governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated) or adjudicatory
proceedings involving any Property of the Company, and will keep the Purchaser
fully informed of such events and permit the Purchaser's representatives
reasonable access to all materials prepared in connection therewith.
(3) The Purchaser covenants and agrees to give prompt notice in
writing to the Seller of: (i) any information that indicates that any
representation or warranty of the Purchaser contained herein was not true and
correct in any material respect as of the date hereof or will not be true and
correct in any material respect as of the Closing Date, (ii) the occurrence of
any event which will result, or has a reasonable prospect of resulting, in the
failure to satisfy a condition specified in Article VIII hereof, (iii) any
notice or other written communication from any third party alleging that the
consent of such third party is or may be required in connection with the
transactions contemplated by this Agreement and (iv) any fact, condition or
change that, individually or in the aggregate, has resulted or is reasonably
likely to result in a Material Adverse Effect with respect to the Purchaser.
(4) The giving of any such notice under this Section 5.11 or the
providing of the financial statements contemplated by Section 5.12 shall in no
way change or modify the Seller's or the Purchaser's representations and
warranties or the conditions to either party's obligations contained herein or
otherwise affect the remedies available to the Purchaser or Seller hereunder.
SECTION 1.55. Interim Financial Statements.
----------------------------
(1) The Seller shall, as soon as available, but no later than 60 days
after the end of the relevant month or quarter, as the case may be, deliver
promptly to the Purchaser any and all final monthly and quarterly financial
statements for the Company, audited or unaudited,
52
<PAGE>
prepared for the management of the Company after the date of this Agreement and
prior to the Closing Date. In addition, Seller will deliver to Purchaser copies
of the audited 1998 Annual Statutory Statement as soon as they have been
delivered by KPMG LLP.
(2) For so long as the Closing Note is outstanding, the Purchaser
shall from time to time provide, upon the reasonable request of the Seller's
chief financial officer, written confirmation to the Seller that the
shareholder's equity of the Purchaser is equal to, or in excess of,
$225,000,000. In the event that the Purchaser's shareholder's equity is less
than $225,000,000, the Purchaser shall from time to time provide to the Seller,
upon the reasonable request by the Seller's chief financial officer, the
Purchaser's most recently prepared quarterly or annual, as the case may be,
consolidated GAAP financial statements.
SECTION 1.56. Affiliate Agreements; Intercompany Accounts.
-------------------------------------------
(1) Except as set forth in Schedule 5.13(a) hereto, the Seller shall
cause all intercompany accounts receivable or payable (whether or not currently
due or payable) between (a) the Company, on the one hand, and (b) the Seller or
any of its Affiliates (other than the Company), or any of the officers or
directors of any of the Seller and any of its Affiliates (other than the
Company), on the other hand, to be settled in full (without any premium or
penalty) at or prior to the Closing; provided, however, that from January 1,
-------- -------
1999 and through the Closing Date, the Company shall reimburse to the Seller,
based on the Seller's actual or allocated cost on a basis consistent with past
practice: (i) the direct and indirect costs of the Current Employees'
compensation, benefits, payroll taxes and the like, paid or accrued by the
Seller on behalf of the Company, (ii) all office and occupancy costs of the
Company's operations, and (iii) corporate overhead cost allocation shall be
calculated in a manner consistent with past practices. Within fifteen Business
Days prior to the Closing, the Seller shall prepare and deliver to the Purchaser
a preliminary statement setting out in reasonable detail the calculation of all
such intercompany account balances as of the Closing based upon the latest
available financial information as of such date. The Seller shall provide the
Purchaser with supporting documentation verifying the underlying intercompany
charges and transactions. If the Purchaser disagrees with the calculation of
such intercompany balances, the Purchaser may, within ten Business Days prior to
the Closing Date, deliver a notice to the Seller disagreeing with such
calculation and setting forth the Purchaser's calculation of such amount. If the
Purchaser and the Seller are unable to resolve such disagreement within five
Business Days thereafter, such disagreement shall be resolved by independent
accountants of nationally recognized standing reasonably satisfactory to the
Purchaser and the Seller.
(2) Section 5.13(b) of the Disclosure Schedule sets forth all
agreements between the Company and the Seller or any of its Affiliates
("Affiliate Agreements"). All Affiliate Agreements shall be terminated and
--------------------
discharged without any further liability or obligation thereunder effective at
December 31, 1998, upon terms and pursuant to instruments reasonably
satisfactory to the Purchaser unless otherwise noted on Section 5.13(b) of the
53
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Disclosure Schedule; provided, further, that (i) the Intercompany Pooling
-------- -------
Agreement shall be terminated, effective December 31, 1998, upon terms
reasonably satisfactory to the Purchaser and in accordance with the accounting
principles implemented in preparing the column identified as "Remove Pooling
Balances" in the Reference Financial Statement, and (ii) notwithstanding the
termination of the Service Agreement, effective December 31, 1998, the Seller
shall pay to the Purchaser service fees equal to 6.2% of the medical stop loss
and provider excess premium earned by the Company on or after January 1, 1999.
Purchaser shall have the rights set forth in Section 5.18(b) with respect to the
medical stop loss and provider excess business. The Seller hereby agrees to hold
harmless and indemnify the Purchaser and the Company, dollar for dollar, from
and against any and all liabilities under or related to the Affiliate
Agreements.
SECTION 1.57. Divestment of Subsidiaries; Release of Pledge.
---------------------------------------------
(1) Prior to the Closing Date, the Seller will cause the Company to
transfer (without cost, liability or obligation to the Company or the Purchaser)
to the Seller all of the issued and outstanding capital stock of USF Insurance
Company, US Holdings, Inc. and any other Subsidiary of the Company. Prior to
such transfer, any Property or assets owned by, or in the possession of, USF
Insurance Company, US Holdings, Inc. or any other Subsidiary of the Company
(including any rights or benefits under insurance policies with respect to such
Property or assets) which are used principally, or are necessary, in connection
with the business of the Company shall be transferred to the Company (without
cost, liability or obligation to the Company or the Purchaser).
(2) On or prior to the Closing Date, the Seller shall cause Fleet
National Bank ("Fleet") to release the pledge of the Shares as security for such
-----
Credit Agreement, such release to be in form and substance satisfactory to the
Purchaser. The Seller shall use its best efforts to cause Fleet to deliver to
the Purchaser, within fifteen Business Days following the date hereof, a letter
(the "Lender Commitment") to the effect that, notwithstanding covenant defaults
under the Credit Agreement existing as of the date of this Agreement, Fleet
intends to release such pledge of the Shares concurrently with the Closing of
the transactions contemplated by this Agreement, upon and subject to Fleet's
receipt of the June 30, 1999 principal payment due under the Credit Agreement
even though the Closing may occur after June 30, 1999.
(3) Within twenty days after the date hereof, Seller shall furnish
Purchaser with a revised Schedule 3.09 updated to March 31, 1999. Such revised
Schedule shall also provide a detailed breakdown of the asset comprising the
$14,129,601 pooling balances as of December 31, 1998 referred to in the
Reference Financial Statement.
(4) The Seller hereby agrees to hold harmless and indemnify the
Purchaser and the Company, dollar for dollar, from and against all liabilities
related to (i) USF Insurance Company, US Holdings, Inc. and any other Subsidiary
of the Company (and the transfer thereof
54
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pursuant to Section 5.14(a) hereof), and (ii) the Credit Agreement and the
release of the pledge on the Share pursuant to Section 5.14(b) hereof.
SECTION 1.58. Seller Obligations. The Seller agrees that in each
------------------
instance in this Agreement where the Company is obligated to act or refrain from
acting under this Agreement during the period prior to the Closing, the Seller
shall cause the Company to fulfill such obligations.
SECTION 1.59. Further Action. Each of the parties hereto shall
--------------
execute and deliver such documents and other papers and take such further
actions as may be reasonably required to carry out the provisions hereof and
give effect to the transactions contemplated hereby.
SECTION 1.60. Leases. The Seller shall, and shall cause the
------
Company to, use its best efforts to obtain the consent of the lessor, if
necessary under the lease relating to 100 Campus Drive, Suite 300, Florham Park,
New Jersey with respect to the change of control of the Company. The Purchaser
and the Company shall have the option to use the real property located in Costa
Mesa, California and leased by the Seller for a period of up to sixty (60) days
after the Closing Date pursuant to an Occupancy Agreement mutually acceptable,
in form and substance, to the Seller and the Purchaser (the "Costa Mesa
----------
Occupancy Agreement"). The Seller shall have the option to use the real
- -------------------
property leased by the Company in Florham Park, New Jersey for a period of up to
sixty (60) days after the Closing Date pursuant to an Occupancy Agreement
mutually acceptable, in form and substance, to the Seller and the Purchaser (the
"Florham Park Occupancy Agreement").
--------------------------------
SECTION 1.61. Medical Aggregate Stop Loss Coverage.
------------------------------------
(1) Prior to the Closing the Seller shall cause the Company to
purchase an Aggregate Stop Loss/Adverse Development reinsurance treaty
protecting the medical stop-loss and provider excess reserves retained by the
Company ( the "Medical Aggregate Stop Loss Treaty"). The terms of the Medical
----------------------------------
Stop Loss Treaty shall be as set forth in the Placement Slip attached hereto as
Exhibit B. The Premium under the Medical Aggregate Stop Loss Treaty as set forth
- ---------
in Exhibit B shall be borne by the Company,
---------
(2) Following the Closing, upon the delivery of reasonable prior
written notice, the Purchaser may review once each calendar year claims
payments, expenses, reinsurance and other matters directly relating to medical
stop loss or provider excess business. In that regard, the Seller shall, and
shall cause (or use its commercially reasonable efforts with respect to non-
employees) its and USBenefits (or their successors or assigns) officers,
directors, employees, auditors and agents to:
(A) afford the officers, employees, agents, accountants,
actuaries and representatives of the Purchaser reasonable
55
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access (for a period not to exceed ten Business Days) during
normal business hours and upon reasonable advance written
notice, to the relevant offices, employees, properties,
books and records of the Seller or USBenefits (or their
successors or assigns); and
(B) during the review period provided for in Clause (A) hereof,
upon the reasonable written request of the Purchaser,
furnish to the officers, employees, agents, accountants,
actuaries and representatives of the Purchaser such
additional financial and operating data and other
information regarding claims payments, expenses, reinsurance
and other matters directly relating to the medical stop loss
or provider excess business as are available to the Seller
or USBenefits (or their successors or assigns).
SECTION 1.62. Investment Portfolio. Prior to the Closing Date, the
--------------------
Seller shall update the Investment Portfolio as of the end of each month and
shall deliver to the Purchaser the updated Investment Portfolio within ten
Business Days of the end of such month.
SECTION 1.63. Certain Software Licenses. Seller shall take all
-------------------------
action necessary (including, without limitation, making any required payments
notwithstanding the limitation described in Section 5.05(c) hereof) to assure
that the software licenses described in Disclosure Schedule 3.17B (i), (ii),
(iii), (iv), and (v) (the "Software Licenses") are in full force and effect and
-----------------
usable by the Company on the Closing Date. Anything in this Agreement to the
contrary notwithstanding, the Seller hereby agrees to indemnify the Purchaser
and the Company against and hold the Purchaser and the Company harmless, dollar
for dollar, from and shall pay any and all claims, losses, damages, expenses,
obligations and liabilities (including costs of investigation, reasonable
attorney's fees and expenses and other costs of defense) arising out of or
otherwise in respect of any suit or claim of violation or infringement of the
Software Licenses or the software subject thereto brought by the owners of the
Software Licenses against the Purchaser or the Company.
EMPLOYEE MATTERS
SECTION 1.64. Purchaser. Subject to the fifth sentence of this
---------
Section 6.01, the Purchaser shall offer employment to all individuals listed on
Section 6.01 of the Disclosure Schedule (the "Current Employees"), on such terms
-----------------
and conditions as are set forth
56
<PAGE>
below. Seller shall use its best efforts to assist Purchaser in hiring the
Current Employees, and shall not offer employment (or arrange to have another
Person or firm offer employment) to any such Current Employee without the prior
written consent of Purchaser. The Current Employees shall be deemed to have
accrued no prior service credit in respect of their period of service with
Seller (or any predecessor thereto). The Purchaser agrees to provide, or to
cause the Company to provide, the Current Employees who accept employment with
the Purchaser with employee benefits which are, in the aggregate, substantially
equivalent to the employee benefits that the Purchaser generally provides to its
employees, while the Current Employees are employed by the Company following the
Closing, other than with respect to the Purchaser's severance policy. Nothing
herein express or implied shall be construed to prevent the Purchaser, at any
time after the Closing Date, from terminating or modifying to any extent or in
any respect at any time or from time to time (i) the Company's employment
relationship with any employee, including any Current Employee, (ii) the terms
and conditions of the employment of any employee, including the Current
Employees, including but not limited to wages and/or salaries, hours and
employee benefits, or (iii) any of the Purchaser's or the Company's "employee
benefit plans" as defined under ERISA or similar or other plans, programs,
arrangements or agreements.
SECTION 1.65. Seller. Effective as of the Closing, the Seller
------
shall take all such actions as may be necessary to cause (i) all Current
Employees to cease active participation in all Plans (including but not limited
to all employee benefit plans, programs or arrangements which such Current
Employees participated in, or which were maintained for the benefit of Current
Employees prior to the Closing by either the Company or the Seller), and (ii)
the Company to cease to be a participating and contributing employer in the
Plans in a manner that the Company has no obligation, responsibility or
liability under such Plans, or to the Current Employees or any other Employees
with respect to such Plans. The Seller shall cause all Current Employees to be
fully vested in their account balances and accrued benefits under the Plans
effective as of the Closing, whether or not such cessation of participation
results in a partial termination of any such Plan. The Purchaser shall neither
adopt, become a sponsoring employer of, and the Company and the Purchaser shall
have no obligations, responsibility or liabilities under, the Plans (including
but not limited to any funding or payment obligation), or to the Current
Employees or other employees with respect to the Plans.
SECTION 1.66. Administration of Payroll and Other Payments. During
--------------------------------------------
the period commencing on, and ending sixty (60) days after, the Closing Date,
the Seller agrees to retain the Current Employees on the Seller's payroll
system, and to retain responsibility for the administration (including all
reporting responsibilities) and payment of all salaries and other wages
(including all taxes and withholdings thereon) to the Current Employees during
such period (it being agreed that the payment of severance or other or similar
benefits to any Current Employee during such period shall be the responsibility
of the Seller under this Section 6.03). The Company shall reimburse the Seller
for all salaries and other wages paid by the Seller (including all taxes paid by
Seller thereon) to the Current Employees during such period. The Purchaser
agrees that from and after the Closing Date, the Current Employees who agree to
be
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<PAGE>
employed by the Purchaser shall be the Purchaser's employees for all
purposes, and such Current Employees shall be covered by Purchaser's health and
medical program. The Purchaser shall be responsible for any obligations under
the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA")
with respect to the Current Employees who agree to be employed by the Purchaser
in the event of any terminations of employment of such Employees which are
effectuated by the Purchaser and occur after the Closing Date, and the Purchaser
agrees to fully indemnify Seller from any and all liabilities arising out of the
failure of the Purchaser to so provide COBRA under such circumstances.
SECTION 1.67. Indemnity. Anything in this Agreement to the
---------
contrary notwithstanding, the Seller hereby agrees to indemnify the Purchaser
and the Company against and hold the Purchaser and the Company harmless, dollar
for dollar, from and shall pay any and all claims, losses, damages, expenses,
obligations and liabilities (including costs of investigation, reasonable
attorney's fees and expenses and other costs of defense) arising out of or
otherwise in respect of (i) any suit or claim of violation brought against the
Purchaser or the Company for any actions taken or inaction by the Seller or the
Company before the Closing Date with respect to any Current Employee or other
Employees, or any facility, site of employment, or operating unit, (ii) any
failure of the Seller to discharge its obligations under Sections 6.02 and 6.03,
(iii) the termination of, or cessation of participation of any Current Employee
or the Company (as a participating employer) in the Plans (including, but not
limited to, income or excise tax assessments, liabilities relating to
participant benefit claims or fiduciary conduct, or liabilities otherwise
arising under ERISA or the Code), (iv) any severance stock options, other equity
or non-equity based compensation, or similar or other payments or benefits which
are triggered by or will be established or become accelerated, vested or payable
by reason of this Agreement or any transaction contemplated under this
Agreement, and (v) any liabilities or obligations with respect to, or in any
manner arising out of, the Plans.
SECTION 1.68. Reimbursement For Bonuses and Severance Payments.
------------------------------------------------
(1) Within thirty days after the Closing, the Purchaser shall make
the stay bonus payments set forth in Section 3.23(1) of the Disclosure Schedule
(the Stay Bonuses"); provided, however, that the Purchaser shall not be required
------------ -------- -------
to make payments to any of the individuals listed on such Disclosure Schedule
who have voluntarily left the employ of the Seller, the Purchaser or the Company
prior to the date which is thirty days after the Closing Date, but shall make
such payments to any employee who has died, is disabled or is involuntarily
terminated. Purchaser shall deliver a written notice to the Seller within five
Business Days after paying the Stay Bonuses and Seller shall deliver to the
Purchaser, by wire transfer, certified check or any other instrument agreed to
by the Purchaser and the Seller an amount representing reimbursement for fifty
percent (50%) of the aggregate Stay Bonuses paid pursuant to this Section
6.05(a).
(2) Notwithstanding anything to the contrary contained in this
Agreement, the Seller agrees to pay fifty percent (50%) of the severance
payments listed in Section 6.05 of the
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Disclosure Schedule. Other than as provided in the immediately preceding
sentence (with respect to the severance obligations set forth in Section 6.05 of
the Disclosure Schedule), no payments or benefits of any kind shall be paid or
provided to or on behalf of, or made with respect to, John Grush, by the Company
and/or by the Purchaser (for purposes of clarity, it being agreed by the parties
hereto that any and all obligations and liabilities to or with respect to Mr.
Grush shall remain with the Seller). The Seller shall deliver such amounts by
wire transfer or certified check as directed in a written notice delivered by
the Purchaser at least three (3) Business Days prior to the date on which such
severance payments become due.
TAX MATTERS
SECTION 1.69. Indemnity. (a) The Seller agrees to indemnify and
---------
hold harmless the Purchaser and the Company against (i) all Taxes of the Company
with respect to any period or portion thereof that ends on or before the
Reference Date, in excess of the amount reserved for Taxes in the Reference
Financial Statement (as shown on Schedule A to the Reference Financial
Statement) and not previously taken into account or paid under the provisions of
Section 5.01(g)(iii) or Article VII or Article IX (the "Tax Reserve"), (ii) all
-----------
Taxes with respect to any period or portion thereof that begins after the
Reference Date and ends on or before the Closing Date which relate to a Tax
Return which is filed on a combined, consolidated, unitary or similar group
basis where the Company is or was a member, (iii) all Taxes imposed on the
Seller or any subsidiary or Affiliate of the Seller (other than the Company),
(iv) amounts in respect of Taxes for Pre-Closing Periods for which the Company
may be liable under Section 1.1502-6 of the Treasury Regulations or any
comparable provision of State, local or foreign law; or as a transferee or
successor, by operation of law or by contract, pursuant to Section 381 of the
Internal Revenue Code; or pursuant to a Tax allocation or sharing agreement, (v)
all Taxes imposed as a result of the Company or any Subsidiary ceasing to be a
member of a combined, consolidated, unitary or similar group and all Taxes
imposed as a result of any transfer of any Subsidiary after the Reference Date
and on or before the Closing Date, and (vi) reasonable liabilities or costs
(including legal expenses) resulting from the foregoing (except as otherwise
provided in Section 7.04(b)). The Purchaser shall be responsible for Taxes in
respect of the Company for which the Purchaser is not eligible for
indemnification pursuant to the first sentence hereof. Nothing in this Section
7.01 (a) shall be interpreted as requiring the Purchaser to make payments of any
Taxes to any taxing authority before the Closing Date.
(b) In the case of Taxes that are payable with respect to a taxable
period (a "Straddle Period") that begins before the Reference Date or the
---------------
Closing Date and ends after the Reference Date or the Closing Date, as the case
may be, (excluding any such Taxes that are taken into account in allocating
liabilities under Section 7.07), the portion of any such Tax that is allocable
to the relevant portion of the period shall
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<PAGE>
be: (i) in the case of Taxes that are either (x) based upon or related to income
or receipts or (y) imposed in connection with any sale or other transfer or
assignment of property (real or personal, tangible or intangible) (other than
conveyances pursuant to this Agreement, as provided under Section 7.07), deemed
equal to the amount which would be payable if the taxable period began or ended
on the Reference Date or Closing Date, as the case may be, and (ii) in the case
of Taxes imposed on a periodic basis with respect to the assets of the Company
or otherwise measured by the level of any item, deemed to be the amount of such
Taxes for the entire period (or, in the case of such Taxes determined on an
arrears basis, the amount of such Taxes for the immediately preceding period)
multiplied by a fraction the numerator of which is the number of calendar days
in the portion of such period ending on the Reference Date or Closing Date, as
the case may be, and the denominator of which is the number of calendar days in
the entire period.
SECTION 1.70. Returns and Payments.
--------------------
(1) From the date of this Agreement through the Closing Date, the
Seller shall cause the Company to prepare and file or otherwise furnish to the
appropriate party (or cause to be prepared and filed or so furnished) in a
timely manner all Tax Returns with respect to the Company that are due (taking
into account all available extensions) on or before the Closing Date and all Tax
Returns with respect to the Company which are required to be filed on a
combined, consolidated, unitary or similar group basis for any tax period of the
Company that ends on or before the Closing Date, which returns shall be prepared
in a manner consistent with past practice employed by the Company. The Purchaser
shall prepare (or cause the Company to prepare) all Tax Returns in respect of
the Company that are not required to be, or caused to be, prepared and filed by
the Seller hereunder including all other Tax Returns required to be filed by the
Company for taxable periods ending on or before December 31, 1998, it being
understood and agreed that the Purchaser shall not be responsible for the
accuracy or completeness of any of the information contained therein. Tax
Returns prepared by the Purchaser for any Straddle Period or for any taxable
period that ends on or prior to the Reference Date shall be prepared in a manner
consistent with past practices employed by the Seller (except to the extent
counsel for the Purchaser determines there is no reasonable basis in law
therefor). With respect to any Tax Return required to be prepared by the
Purchaser hereunder and as to which an amount of Tax is allocable to the Seller
under Section 7.01, the Purchaser shall provide the Seller and its authorized
representatives with a copy of such completed Tax Return (with which the
Purchaser will make available supporting schedules and information), and a
statement and supporting schedules certifying the amount of Tax shown on such
Tax Return that is allocable to the Seller pursuant to Section 7.01(b), at least
20 days prior to the due date (including any extension thereof) for the filing
of such Tax Return, and the Seller and its authorized representatives shall have
the right to review such Tax Return and statement prior to the filing of such
Tax Return. The Seller and the Purchaser agree to consult and to attempt in good
faith to resolve any issues
60
<PAGE>
arising as a result of the review of such Tax Return and statement by the Seller
or its authorized representatives; provided that such consultation does not
delay the timely filing of the Tax Return. In the event of a dispute, the party
that is responsible hereunder for the greater amount of Taxes, taking into
account on a net present value basis all open taxable periods affected by the
issue (including future periods in the case of recurring issues), shall have the
right to make the final determination as to any such disputed issue.
(2) The Seller shall pay or cause to be paid to the appropriate Tax
authority when due and payable all Taxes that are required to be reported on Tax
Returns which are required to be filed by the Seller pursuant to subsection (a)
to the extent such Taxes exceed the Tax Reserve (but subject to the right of the
Seller to be paid amounts in respect of Taxes and to be indemnified by the
Purchaser pursuant to Section 7.01(a)). From and after the Closing Date, the
Purchaser shall pay or cause to be paid to the appropriate Tax authority when
due and payable all Taxes which accrue with respect to the Company for any other
taxable period (subject to its right of indemnification from the Seller for the
pre-Reference Date portion or Pre-Closing Date portion of any Tax period that
includes the Reference Date or Closing Date pursuant to Sections 7.01(a) and
(b)).
SECTION 1.71. Refunds. Any refunds received by the Purchaser or
-------
the Company (or any successor to any of the foregoing) with respect to Taxes of
the type for which the Seller is required to indemnify the Purchaser or the
Company pursuant to Section 7.01(a)(i) through (v) shall be for the account of
the Seller, and the Purchaser shall pay over or cause to be paid over to the
Seller any such refund or the amount of any such benefit within ten Business
Days of the receipt thereof (in the case of such a refund) or entitlement
thereto (in the case of such an entitlement). The Purchaser shall, if the Seller
reasonably so requests, cause the relevant entity to file for any refunds, or
equivalent amounts to which the Seller is entitled under this Section 7.03. The
Purchaser shall permit the Seller to control the prosecution of any such refund
claim, and shall cause the relevant entity to authorize by appropriate power of
attorney such persons as the Seller shall designate to represent such entity
with respect to such refund claim and the Seller shall reimburse the Purchaser
for all its reasonable out-of-pocket expenses in connection therewith, provided
--------
that to the extent there is any disputed issue with respect to the prosecution
of any such refund claim, control of that issue shall be determined as if the
refund claim were a Tax Return for the purposes of the last sentence of Section
7.02(a). The Seller shall pay over to the Purchaser any refunds of Taxes for
which the Purchaser is responsible under Section 7.01(a) that may be received by
the Seller or any Affiliate thereof (other than the Company). Notwithstanding
anything herein to the contrary, to the extent any refund is attributable to the
carryback of losses or credits arising in a taxable period beginning after the
Reference Date (the claim for which refund shall be prepared and pursued at the
Purchaser's expense), such refund shall be for the account of and belong to the
Purchaser.
SECTION 1.72. Contests.
--------
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<PAGE>
(1) After the Closing, the Purchaser shall reasonably promptly after
becoming aware notify the Seller in writing of the commencement of any Tax audit
or administrative or judicial proceeding and shall also separately notify the
Seller in writing of any demand or claim on the Purchaser or the Company which,
if determined adversely to the taxpayer or after the lapse of time would be
grounds for indemnification by the Seller under this Article VII. Such notice
shall contain factual information (to the extent known to the Purchaser or the
Company) describing the asserted Tax liability in reasonable detail and shall
include copies of any notice or other document received from any taxing
authority in respect of any such asserted Tax liability. If the Purchaser fails
to give the Seller reasonably prompt notice of an asserted Tax liability as
required by this Section 7.04, then (i) if the Seller is precluded by the
failure to give reasonably prompt notice from contesting the asserted Tax
liability in both the administrative and judicial forums, then the Seller shall
not have any obligation to indemnify for any loss or damage arising out of such
asserted Tax liability, and (ii) if the Seller is not so precluded from
contesting but such failure to give reasonably prompt notice results in an
actual detriment to the Seller, then any amount which the Seller is otherwise
required to pay the Purchaser pursuant to this Article VII with respect to such
liability shall be reduced by the amount of such detriment.
(2) The Seller, promptly after receiving notice, may elect to direct,
through counsel of its own choosing and at its own expense, any audit, claim for
refund and administrative or judicial proceeding involving any asserted
liability with respect to which indemnity may be sought against the Seller under
this Article VII (any such audit, claim for refund or proceeding relating to an
asserted Tax liability are referred to herein collectively as a "Contest"). If
-------
the Seller elects to direct the Contest of an asserted Tax liability, the
Purchaser shall cooperate in all reasonable respects and shall cause the Company
or its successor to cooperate in all reasonable respects, at the Seller's
expense, in each phase of such Contest. If the Seller does not either
reasonably promptly give notice to direct the Contest or commence the direction
of the Contest or if it contests its obligation to indemnify under Section 7.01,
the Purchaser or the Company may pay, compromise or contest, at its own expense,
such asserted liability without waiving any of its rights to indemnification
hereunder. However, in such case, neither the Purchaser nor the Company may
settle or compromise any asserted liability over the objection of the Seller;
provided, however, that the Seller's consent to settlement or compromise shall
- -------- -------
not be unreasonably withheld or delayed. In any event, each of the Purchaser
(or the Company) and the Seller may participate, at their own expense, in the
Contest. If the Seller chooses to direct the Contest, the Purchaser shall
promptly empower and shall cause the Company or its successor promptly to
empower (by power of attorney and such other documentation as may be
appropriate) such representatives of the Seller as it may designate to represent
the Purchaser or the Company or its successor in the Contest insofar as the
Contest involves an asserted Tax liability for which the Seller would be liable
under this Article VII, provided that the Seller shall not, without the
--------
Purchaser's consent, which shall not be unreasonably withheld or delayed, (x)
agree to any settlement with respect to any Tax if such settlement would likely
materially adversely affect the future Tax liability of the Purchaser or the
Company for any periods ending after the Reference Date other than through the
use of losses or
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credits arising in periods or portions thereof ending on or prior to the
Reference Date or (y) agree to any settlement of such claim or cease to defend
against such claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief would be imposed against the
Purchaser or the Company. If, with respect to any proposed settlement referred
to in clause (x) of the previous sentence, the Seller proposes in good faith to
settle a claim, suit, action or proceeding with respect to any Tax, which
settlement offer is accepted by the relevant taxing authority, the Purchaser may
elect to continue to contest such claim, suit, action or proceeding; provided
--------
that notwithstanding how such matter is ultimately settled or decided, the
liability of the Seller with respect to such claim, suit, action or proceeding
shall be no greater than the amount which would have been payable if the
Purchaser had consented to the settlement proposed by the Seller.
(3) The Purchaser shall have the sole obligation and right to direct,
at its own expense, a Contest regarding any Tax Return relating to the Company
for any taxable period commencing after the Reference Date (or the Closing Date
in the case of a Tax Return which is filed on a combined, consolidated, unitary
or similar basis); provided, however, that the Purchaser shall advise and
-------- -------
consult with the Seller regarding the status of any such Contest that involves
the Company and provided further that, without the prior written consent of the
Seller (which shall not be unreasonably withheld or delayed), and except as
provided in Section 7.04(b), the Purchaser shall not (i) make any election,
change any annual accounting period or adopt or change any accounting method if
any such election, adoption or change would have the effect of increasing the
tax liability of the Seller in any tax period or portion thereof ending on or
before the Reference Date, or (ii) file any amended return, enter into any
closing agreement, settle any tax claim or assessment relating to the Company,
surrender any right to claim a refund of Taxes, consent to any extension or
waiver of the limitation period applicable to any tax claim or assessment
relating to the Company or take any action, if any such amendment, agreement,
settlement, surrender, consent or other action would have the effect of
increasing the tax liability of the Seller in any tax period or portion thereof
ending on or before the Reference Date (or the Closing Date in the case of a Tax
Return which is filed on a combined, consolidated, unitary or similar basis),
except to the extent the Seller is to be fully indemnified by the Purchaser
against any such increase under Section 7.05 or otherwise.
SECTION 1.73. Certain Audit Adjustments. If an audit adjustment,
-------------------------
claim for refund or amended return ("Adjustment"), after the date hereof shall
----------
both increase a Tax liability which is allocated to the Seller under Section
7.01 (or reduce losses or credits otherwise available to the Seller) for a
period or portion thereof ending on or before the Reference Date (or the Closing
Date in the case of a Tax Return which is filed on a combined, consolidated,
unitary or similar basis) and decrease a Tax liability which is allocable to the
Purchaser for a period or portion thereof ending after the Reference Date (or
the Closing Date in the case of a Tax Return which is filed on a combined,
consolidated, unitary or similar basis), then, when and to the extent that the
Purchaser (or the Company) derives a benefit from such decrease (through a
reduction of Taxes, refund of Taxes paid or credit against Taxes due), the
Purchaser shall
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<PAGE>
promptly pay to the Seller an amount equal to the amount of such refund,
reduction or credit (unless the Seller has previously been compensated for such
benefit under this Article VII). Similarly, if an Adjustment shall both decrease
a Tax liability which is allocated to the Seller under Section 7.01 for a period
or portion thereof ending on or before the Reference Date (or the Closing Date
in the case of a Tax Return which is filed on a combined, consolidated, unitary
or similar basis) and increase the Tax liability which is allocable to the
Purchaser (or reduce losses or credits otherwise available to the Purchaser) for
a period or portion thereof ending after the Reference Date (or the Closing Date
in the case of a Tax Return which is filed on a combined, consolidated, unitary
or similar basis), then, when and to the extent that the Seller derives a
benefit from such decrease (through a refund or reduction of Taxes paid or
credit against Taxes due), the Seller shall promptly pay to the Purchaser an
amount equal to the amount of such refund, reduction or credit. In the event
that a benefit derived from an increase in a Tax liability allocable to either
the Purchaser or the Seller pursuant to an Adjustment is negated due to a
subsequent Adjustment or net operating loss carryback after either the Purchaser
or Seller has paid such benefit to the other party, as the case may be, such
benefit shall be repaid to the original payor, subject to return to such other
party if and when the benefit again becomes available.
SECTION 1.74. Cooperation and Exchange of Information. The Seller
---------------------------------------
and the Purchaser will provide each other with such cooperation and information
as either of them reasonably may request of the other in filing any Tax Return,
amended return or claim for refund, determining a liability for Taxes or a right
to a refund of Taxes or participating in or conducting any audit or other
proceeding in respect of Taxes. Such cooperation and information shall include
providing copies of relevant Tax Returns or portions thereof, together with
accompanying schedules and related work papers and documents relating to rulings
or other determinations by taxing authorities, but in no event shall either
party be required to disclose to the other party any information relating to its
operations other than the Company. The Seller and the Purchaser shall make
their employees available on a mutually convenient basis to provide explanations
of any documents or information provided hereunder. The Seller and the
Purchaser will retain all Tax Returns, schedules and work papers and all
material records or other documents relating to Tax matters of the Company for
its taxable period first ending after the Closing Date and for all prior taxable
periods until the later of: (i) the expiration of the statute of limitations of
the taxable periods to which such returns and other documents relate, without
regard to extensions except to the extent notified by the other party in writing
of such extensions for the respective Tax periods; or (ii) six years following
the due date (without extension) for such returns. After such time, before
either the Seller or the Purchaser shall dispose of any of such books and
records, at least ninety calendar days prior written notice to such effect shall
be given to the other party, and such other party shall be given an opportunity,
at its cost and expense, to remove and retain all or any part of such books and
records as such party may select; provided, however, that in no event shall
-------- -------
either party be required to disclose to the other party any information relating
to its operations other than the Company. Any information obtained under this
Section 7.06 shall be kept confidential, except as may be otherwise necessary in
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connection with the filing of returns or claims for refund or in conducting an
audit or other proceeding.
SECTION 1.75. Conveyance Taxes. The Seller agrees to assume
----------------
liability for and to hold the Purchaser harmless against any sales, use,
transfer, stamp, stock transfer, real property transfer or gains, and value
added taxes, any transfer, registration, recording or other fees, and any
similar Taxes incurred as a result of the transactions contemplated hereby, and
shall file such applications and documents as shall permit any such Tax to be
assessed and paid on or prior to the Closing Date in accordance with any
available pre-sale filing procedure.
SECTION 1.76. FIRPTA Certificate. Seller shall deliver or cause to
------------------
be delivered to the Purchaser on the Closing Date a FIRPTA Certificate duly
executed by the Company and in form and substance reasonably satifactory to the
Purchaser.
SECTION 1.77. Tax Sharing Agreement. The Tax Sharing Agreement
---------------------
shall terminate with respect to the Company on the Closing Date, with the
Company having no further payment obligation or rights under such agreement on
or after the Closing Date.
SECTION 1.78. Miscellaneous.
-------------
(1) The Seller and the Purchaser agree to treat all payments made by
either to or for the benefit of the other (including any payments to the
Company) under this Article VII and under other indemnity provisions of this
Agreement, as adjustments to the purchase price or as capital contributions for
Tax purposes and that such agreed treatment shall govern for Tax purposes
hereof.
(2) Regardless of whether a Contest is commenced, if the Seller
becomes aware of the commencement of any Tax audit or administrative or judicial
proceeding which could result in any liability for which the Seller has agreed
to indemnify the Purchaser or the Company pursuant to the provisions of Section
7.01(a), the Seller shall reasonably promptly so inform the Purchaser in writing
(if it has not previously done so).
(3) All indemnities under this Article VII shall be paid dollar-for-
dollar, in accordance with their terms, without regard to any caps, floors,
baskets or other similar limitations.
CONDITIONS TO CLOSING
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SECTION 1.79. Conditions to Obligations of the Seller. The
---------------------------------------
obligation of the Seller to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment or prior written waiver, at or
prior to the Closing, of each of the following conditions:
(1) Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of the Purchaser contained in this Agreement shall be true and
correct in all material respects as of the Closing (except where the failure to
be so true and correct would not have the effect of making the transactions
contemplated by this Agreement illegal or prevent or materially delay the
consummation of such transactions), with the same force and effect as if made as
of the Closing, other than such representations and warranties as are made as of
another date, which shall be true and correct as of such date; provided,
--------
however, that if any such portion of any representation or warranty is already
- -------
qualified by materiality, for purposes of determining whether this Section
8.01(a) has been satisfied with respect to such portion of such representation
or warranty, such portion of such representation or warranty as so qualified
must be true and correct in all respects, and all the covenants contained in
this Agreement to be complied with by the Purchaser on or before the Closing
shall have been complied with (except where the failure to so comply would not
have the effect of making the transactions contemplated by this Agreement
illegal or prevent or materially delay the consummation of such transactions or
involve the breach of any material covenant by Purchaser), and the Seller shall
have received a certificate of the Purchaser to such effect signed by a duly
authorized officer thereof;
(2) HSR Act. Any waiting period (and any extension thereof) under
-------
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated without any material adverse action
by the Federal Trade Commission or Department of Justice;
(3) No Order. No United States or state governmental authority or
--------
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions or which would have a Material
Adverse Effect with respect to the Purchaser; provided, however, that the
--------- --------
parties hereto shall use their best efforts to have any such order or injunction
vacated;
(4) Governmental Filings and Consents. All governmental orders,
---------------------------------
approvals and consents to the transactions contemplated by this Agreement shall
have been obtained and be in effect on the Closing Date (including, but not
limited to, the approval of the Massachusetts Insurance Division and any
approvals which may be required under the insurance laws of any jurisdiction in
which the Company does business), except to the extent that the failure to
obtain
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any such consent would not have the effect of making the transactions
contemplated by this Agreement illegal or otherwise restrain or prohibit
consummation of such transactions or result in a material liability to the
Seller;
(5) Third Party Consents. The Seller shall have received the third
--------------------
party consents, approvals, authorizations or actions to the transactions
contemplated by this Agreement, if any, in form and substance reasonably
satisfactory to the Seller from the parties listed in Section 8.01(e) of the
Disclosure Schedule, except to the extent that failure to obtain any such
consents would not have the effect of making the transactions contemplated by
this Agreement illegal or otherwise restrain or prohibit consummation of such
transactions or result in a material liability to the Seller;
(6) Legal Opinion. The Seller shall have received from Morgan,
-------------
Lewis & Bockius LLP, counsel to the Purchaser, a legal opinion, addressed to the
Seller and dated the Closing Date, reasonably satisfactory to the Seller;
(7) Incumbency Certificate. The Seller shall have received a
----------------------
certificate of the Secretary or an Assistant Secretary of the Purchaser
certifying (i) the names and signatures of the officers of the Purchaser
authorized to sign this Agreement) and any other document required to be
delivered hereunder and (ii) as to the resolutions of the Purchaser's board of
directors approving the execution and delivery of this Agreement and the
performance of the transactions contemplated hereby and thereby;
(8) Proceeding. All proceedings, corporate or otherwise, taken by
----------
the Purchaser in connection with the transactions contemplated hereby and all
instruments and documents incident thereto shall be reasonably satisfactory in
form and substance to the Seller and its counsel;
(9) Florham Park Occupancy Agreement. If requested by the Seller not
--------------------------------
less than 10 days prior to the Closing, the Company shall have executed and
delivered to the Seller the Florham Park Occupancy Agreement;
(10) Consent of First Chicago. First Chicago shall have approved (i)
------------------------
the form and substance of, and the execution and delivery of, the Closing Note
and (ii) the delivery of security with respect to the Closing Note as
contemplated by Section 2.04(d); and
(11) Escrow Agreement. The Purchaser and the Seller shall have
----------------
agreed upon the form, terms, and provisions of the escrow agreement as required
by Section 2.04(d) hereof.
SECTION 1.80. Conditions to Obligations of the Purchaser. The
------------------------------------------
obligations of the Purchaser to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment, at or prior to the Closing, of
each of the following conditions:
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(1) Representations and Warranties; Covenants. The representations
-----------------------------------------
and warranties of the Seller contained in this Agreement shall be true and
correct in all material respects as of the Closing with the same force and
effect as if made as of the Closing, other than such representations and
warranties as are made as of another date, which shall be true and correct as of
such date; provided, however, that if any portion of any representation or
-------- -------
warranty is already qualified by materiality, for purposes of determining
whether this Section 8.02(a) has been satisfied with respect to such portion of
such representation or warranty, such portion of such representation or warranty
as so qualified must be true and correct in all respects, and all the covenants
contained in this Agreement to be complied with by the Seller on or before the
Closing shall have been complied with in all material respects, and the
Purchaser shall have received a certificate of the Seller to such effect signed
by a duly authorized officer thereof;
(2) HSR Act. Any waiting period (and any extension thereof) under
-------
the HSR Act applicable to the purchase of the Shares contemplated hereby shall
have expired or shall have been terminated without any adverse action by the
Federal Trade Commission or the Department of Justice and neither shall impose
any conditions upon the Purchaser or the Company which would cause either
thereof any material additional cost, materially interfere with the continued
operation of the business of the Purchaser or the Company as currently
conducted;
(3) No Order or Suit. No United States or state governmental
----------------
authority or other agency or commission shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, injunction or other order
(whether temporary, preliminary or permanent) which is in effect and has the
effect of making the transactions contemplated by this Agreement illegal or
otherwise restraining or prohibiting consummation of such transactions or which
would have a Material Adverse Effect; in addition, no action, suit or proceeding
before any Governmental Entity shall be pending or threatened and no
investigation by any Governmental Authority shall have commenced seeking to
restrain or prohibit (or questioning the validity or legality of) the
transactions contemplated by this Agreement or seeking to restrict in any
material respect the effective operation of the Business of the Company after
the Closing or seeking material damages in connection therewith, which
Purchaser, in good faith and with the advice of counsel, believes makes it
undesirable to proceed with the consummation of the transactions contemplated
hereby; provided, however, that the parties hereto shall use their best efforts
-------- -------
to have any such order or injunction vacated; and provided further, however,
-------- ------- -------
that, in the case of a threatened action, suit or proceeding, it shall be
reasonably likely that such action, suit or proceeding will have a Material
Adverse Effect;
(4) Governmental Filings and Consents. All governmental orders,
---------------------------------
approvals and consents to the transactions contemplated by this Agreement shall
have been obtained and be in effect on the Closing Date (including, but not
limited to, the approval of the Massachusetts Insurance Division and any
approvals which may be required under the insurance laws of any jurisdiction in
which the Company does business), except to the extent that the failure to
obtain
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any such consent, individually and in the aggregate, would not have a Material
Adverse Effect, and such approvals as shall have been obtained shall not impose
upon the Purchaser or the Company any conditions or other requirements which
would cause either thereof any material additional costs or materially interfere
with the continued operations of the business of the Purchaser or the Company as
currently conducted;
(5) Third Party Consent. The Purchaser shall have received the third
-------------------
party consents, approvals, authorizations or actions to the transactions
contemplated by this Agreement, if any, in form and substance reasonably
satisfactory to the Purchaser from the parties listed in Section 8.02(e) of the
Disclosure Schedule, except to the extent that the failure, individually and in
the aggregate, to obtain any such consents would not have a Material Adverse
Effect; provided, however, that such exception shall not in any event apply to
those consents identified with an asterisk on such Schedule 8.02(e);
(6) Legal Opinion. The Purchaser shall have received from Baker &
-------------
Daniels, counsel to the Seller, a legal opinion, addressed to the Purchaser and
dated the Closing Date, reasonably satisfactory to the Purchaser;
(7) Delaware Legal Opinion. The Purchaser shall have received from
----------------------
Richards, Layton & Finger, special Delaware counsel to the Seller, a legal
opinion addressed to the Purchaser and dated the Closing Date, confirming, as of
the Closing Date, in form and substance reasonably satisfactory to the Purchaser
and its Delaware counsel, to the effect that no stockholder approval is
necessary in connection with the execution and delivery of this Agreement, the
performance of Seller's obligations hereunder and the consummation of the
transactions contemplated hereby and thereby.
(8) Resignation of Directors and Certain Officers of the Company.
------------------------------------------------------------
The Purchaser shall have received the resignations, effective as of the Closing,
of all the directors of the Company, the Chairman of the Board of the Company,
the Secretary and Senior Vice President of the Company, and the Treasurer and
Senior Vice President of the Company.
(9) Organizational Documents. The Purchaser shall have received a
------------------------
copy of (i) the Charter of the Company, certified by the Commissioner of
Insurance or other appropriate official of the Commonwealth of Massachusetts, as
of a date not earlier than ten Business Days prior to the Closing Date and
accompanied by a certificate of the Secretary or Assistant Secretary of the
Company, dated as of the Closing Date, stating that no amendments have been made
to such Charter since such date, and (ii) the By-laws of the Company, certified
by the Secretary or Assistant Secretary of the Company;
(10) Good Standing. The Purchaser shall have received a good standing
-------------
certificate for the Company from the Commissioner of Insurance or other
appropriate official of
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<PAGE>
the Commonwealth of Massachusetts, dated as of a date not earlier than fifteen
Business Days prior to the Closing Date;
(11) No Material Adverse Effect. Since the date of this Agreement,
--------------------------
no event or events shall have occurred which, individually or in the aggregate,
have, or are reasonably likely to have, a Material Adverse Effect;
(12) Incumbency Certificate. The Purchaser shall have received a
----------------------
certificate of the Secretary of the Seller certifying the names and signatures
of the officers of the Seller authorized to sign this Agreement and any other
document required to be delivered hereunder;
(13) Minute and Stock Books. The Purchaser shall have received
----------------------
evidence reasonably satisfactory to it that the complete and correct minute
books and stock certificate and transfer books (with all canceled and unused
stock certificates attached) and the corporate seals of the Company are in the
possession of the Person designated by the Purchaser to the Seller in writing at
least two Business Days prior to the Closing;
(14) Subsidiaries. All of the capital stock of USF Insurance
------------
Company, U Holdings, Inc. and any other Subsidiary of the Company shall have
been transferred from the Company to the Seller in accordance with Section
5.14(a) hereof;
(15) Release of Pledge. The Pledge of the Shares pursuant to the
-----------------
Credit Agreement shall have been released in accordance with Section 5.14(b)
hereof and the Purchaser shall have received evidence reasonably satisfactory to
it that such pledge has been released (such evidence to include, without
limitation, a release and termination agreement duly executed by Fleet National
Bank);
(16) Proceeding. All proceedings, corporate or otherwise, taken by
----------
the Seller in connection with the transactions contemplated hereby and all
instruments and documents incident thereto shall be reasonably satisfactory in
form and substance to the Purchaser and its counsel;
(17) Costa Mesa Occupancy Agreement. The Seller shall have executed
------------------------------
and delivered to the Purchaser or the Company, as the case may be, the Costa
Mesa Occupancy Agreement;
(18) Consent of First Chicago. First Chicago shall have approved (i)
------------------------
the form and substance of, and the execution and delivery of, the Closing Note
and (ii) the delivery of security with respect to the Closing Note as
contemplated by Section 2.04(d); and
(19) Escrow Agreement. The Purchaser and the Seller shall have
----------------
agreed upon the form, terms and provisions of the escrow agreement as required
by Section 2.04(d) hereof.
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(20) Software Licenses. Seller shall have fulfilled its obligations
------------------
under Section 5.20 respecting the Software Licenses.
INDEMNIFICATION
SECTION 1.81. Survival. The representations, warranties, covenants
--------
and agreements of the parties hereto contained herein shall survive the Closing
and shall remain in full force and effect, regardless of any investigation made
by or on behalf of the Seller or the Purchaser, for the period from the Closing
to and including the date two years after the Closing; provided, however, that
-------- -------
the agreements and covenants which by their terms require performance after the
Closing Date shall remain in full force and effect until the applicable period
under the statute of limitations therefor has expired; and provided further that
the survival of (x) the representations and warranties contained in the first
sentence of Section 3.02, Section 3.03, Section 3.04, 3.08 and Section 3.15 and
the representations and warranties contained in the first sentence of Section
4.01 and the first sentence of Section 4.02 shall be unlimited in time; (y) the
representations and warranties in Section 3.25 respecting the liability of the
Company for Taxes shall continue to survive until all taxable periods of the
Company to and including the Closing Date shall be closed to any further
assessment of Taxes and to any assessment of any penalties or interest charges
in respect of any such Taxes, by receipt of a final assessment, in form and
substance reasonably satisfactory to the Purchaser, from the appropriate tax
authorities, or by the expiration of the applicable statute of limitations or
any extension thereof by waiver or otherwise; and (z) the representations and
warranties contained in Section 3.23 shall survive until the applicable period
under the statute of limitation therefor has expired.
71
<PAGE>
SECTION 1.82. Indemnification by the Purchaser.
--------------------------------
(1) The Purchaser agrees, subject to the other terms and conditions
of this Agreement, to indemnify the Seller and its Affiliates, and their
respective officers, directors, employees, agents, heirs, successors and assigns
(as used in this Section 9.02, each an "Indemnified Party") against and hold
-----------------
them harmless from, and shall pay, all liabilities of and costs and damages
(including any costs of investigation, reasonable attorneys' fees and expenses
and other costs of defense) arising out of (i) the breach of any representation,
warranty, covenant or agreement of the Purchaser herein (other than Article VI,
it being understood that the sole remedy for breach thereof shall be pursuant to
Article VI) and (ii) the conduct of the Business by the Purchaser following the
Closing. Anything in Section 9.01 to the contrary notwithstanding, no claim may
be asserted nor may any action be commenced against the Purchaser under this
Section 9.02 for breach of any representation, warranty, covenant or agreement
contained herein, unless written notice of such claim or action is received by
the Purchaser describing in reasonable detail the facts and circumstances known
to the Seller with respect to the subject matter of such claim or action on or
prior to the date on which the representation, warranty, covenant or agreement
on which such claim or action is based ceases to survive as set forth in Section
9.01, irrespective of whether the subject matter of such claim or action shall
have occurred before or after such date and any claim made by the Seller under
this Article IX within the aforesaid time periods shall be considered timely
made even if such claim is not resolved until after the expiration of the
aforesaid periods; provided, however, that a claim may be asserted and an action
-------- -------
may be commenced against the Purchaser for breach of the agreements and
covenants which by their terms are to be performed after the Closing Date
(including, without limitation, the indemnities contained herein) until the
applicable period under the statute of limitations therefor has expired.
(2) No claim may be made against the Purchaser for indemnification
pursuant to this Section 9.02 with respect to any item of liability or damage
relating to the breach of a representation or warranty unless the aggregate of
all such liabilities and damages of the Indemnified Parties with respect to this
Section 9.02 shall exceed $500,000 and the Purchaser shall not be required to
pay or be liable for the first $500,000 in aggregate amount of such liabilities
and damages. No Indemnified Party shall be indemnified pursuant to this Section
9.02 with respect to any item of liability or damage if the aggregate of all
liabilities and damages of the Indemnified Parties for which the Indemnified
Parties have received indemnification pursuant to this Section 9.02 shall have
exceeded an amount equal to the Adjusted Purchase Price.
(3) Payments by the Purchaser pursuant to Section 9.02(a) shall be
limited to the amount of any liability or damage that remains after deducting
therefrom any insurance proceeds and any indemnity, contribution or other
similar payment recoverable by the Indemnified Party from any third party with
respect thereto; provided, however, that the reduction for insurance proceeds
-------- -------
shall itself be reduced by the present value of the Seller's
72
<PAGE>
reasonably estimated increase in insurance costs directly attributable to the
claim in respect of which such insurance proceeds shall have been received for
the five years following the receipt of such proceeds using a discount rate of
six percent.
(4) An Indemnified Party shall give the Purchaser prompt written
notice of any claim, assertion, event or proceeding by or in respect of a third
party of which an Indemnified Party has knowledge concerning any liability or
damage as to which an Indemnified Party may request indemnification hereunder.
Failure to give such notice shall not waive any right to indemnification on the
part of the Indemnified Party or Parties who fail to give such notice, except
only to the extent of any damage or loss actually suffered by the Purchaser by
reason of the delay in receiving such notice. The Purchaser shall have the right
to direct, through counsel of its own choosing, provided such counsel is
reasonably satisfactory to the Indemnified Party, the defense or settlement of
any such claim or proceeding at its own expense, provided that the Purchaser
vigorously and diligently pursues such defense in good faith and keeps the
Indemnified Party and its attorneys reasonably informed as to the progress of
the defense and any proposed settlement. If the Purchaser elects to assume the
defense of any such claim or proceeding, the Indemnified Party may participate
in such defense, but in such case the expenses of the Indemnified Party shall be
paid by the Indemnified Party. The Indemnified Party shall provide the Purchaser
with access to such Indemnified Party's records and personnel relating to any
such claim, assertion, event or proceeding during normal business hours and
shall otherwise cooperate with the Purchaser in the defense or settlement
thereof, and the Purchaser shall reimburse the Indemnified Party for all the
reasonable out-of-pocket expenses of such Indemnified Party in connection
therewith. If the Purchaser elects to direct the defense of any such claim or
proceeding, the Indemnified Party shall not pay, or permit to be paid, any part
of any claim or demand arising from such asserted liability, (i) unless the
Purchaser consents in writing to such payment which consent shall not be
unreasonably withheld, but if such consent is not given in the case of a
settlement proposal, the Purchaser will post a letter of credit from a bank
reasonably satisfactory to the Seller in the amount of such proposed settlement,
or (ii) unless the Purchaser, subject to the last sentence of this Section
9.02(d), withdraws from the defense of such asserted liability, or (iii) unless
a final judgment from which no appeal may be taken by or on behalf of the
Purchaser is entered against the Indemnified Party for such liability, or (iv)
unless there is a material risk if such asserted liability is not paid then an
injunction or other equitable relief will be granted which will materially
adversely effect the business of the Seller or there is a material risk of the
seizure of any material assets of the Seller or a material risk that a lien or
liens will be imposed on any such material asset. If the Purchaser shall fail to
defend, or if, after commencing or undertaking any such defense, the Purchaser
fails to diligently prosecute and defend or withdraws from such defense, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the Purchaser's expense. If the Indemnified Party assumes the
defense of any such claim or proceeding pursuant to this Section 9.02(d) and
proposes to settle such claim or proceeding prior to a final judgment thereon or
to forego appeal with respect thereto, then the Indemnified Party shall give the
Purchaser prompt written notice thereof and the Purchaser shall have the right
to participate in the settlement or assume or
73
<PAGE>
reassume the defense of such claim or proceeding subject to the conditions set
forth above; provided that if the Purchaser does not assume or reassume the
defense within ten Business Days or any earlier time that such offer to settle
expires and post a letter of credit reasonably satisfactory to the Seller in the
amount of the proposed settlement, then the Indemnified Party can settle such
claim in good faith without the consent of the Purchaser.
(5) Except as set forth in this Agreement, the Closing Note and the
Escrow Agreement, the Purchaser is not making any representation, warranty,
covenant or agreement with respect to the matters contained herein or therein.
Anything herein to the contrary notwithstanding, no breach of any
representation, warranty, covenant or agreement contained herein or therein
shall give rise to any right on the part of the Indemnified Party, after the
consummation of the purchase and sale of the Shares contemplated by this
Agreement, to rescind this Agreement or any of the transactions contemplated
hereby.
SECTION 1.83. Indemnification by the Seller.
-----------------------------
(1) The Seller agrees, subject to the other terms and conditions of
this Agreement, to indemnify the Purchaser and its Affiliates and their
respective officers, directors, employees, agents, heirs, successors and assigns
(as used in this Section 9.03, each an "Indemnified Party") against and hold
-----------------
them harmless from, and shall pay, all liabilities of and costs and damages
(including any costs of investigation, reasonable attorneys' fees and expenses
and other costs of defense) arising out of the breach of any representation,
warranty, covenant or agreement of the Seller herein. Anything in Section 9.01
to the contrary notwithstanding, no claim may be asserted nor any action
commenced against the Seller under this Section 9.03 for breach of any
representation, warranty, covenant or agreement contained herein, unless written
notice of such claim or action is received by the Seller describing in
reasonable detail the facts and circumstances known to the Purchaser with
respect to the subject matter of such claim or action on or prior to the date on
which the representation, warranty, covenant or agreement on which such claim or
action is based ceases to survive as set forth in Section 9.01, irrespective of
whether the subject matter of such claim or action shall have occurred before or
after such date; and any claim made by Purchaser under the provisions of this
Article IX within the aforesaid time periods shall be considered timely made
even if such claim is not resolved until after the expiration of the aforesaid
periods; provided, however, that a claim may be asserted and an action may be
-------- -------
commenced against the Seller for breach of the agreements and covenants which by
their terms are to be performed after the Closing Date (including, without
limitation, the indemnities contained herein) until the applicable period under
the statute of limitations therefor has expired and a claim may be asserted and
an action may be separately commenced under Articles VI and VII.
(2) No claim may be made against the Seller for indemnification
pursuant to this Section 9.03 with respect to any item of liability or damage
with respect to a breach of a representation or warranty or a covenant the
compliance with which is outside the control of Seller, unless the aggregate of
all such liabilities and damages of the Indemnified Parties with
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respect to this Section 9.03 shall exceed $500,000, and the Seller shall not be
required to pay or be liable for the first $500,000 in aggregate amount of any
such liabilities and damages, but shall pay for liabilities and damages in
excess of such amount subject to the following sentence; provided, however, that
-------- -------
the Seller agrees that such $500,000 exclusion shall not apply to any loss or
damage suffered by the Purchaser or other Indemnified Party arising out of,
based upon or resulting from any breach of any covenant which is not outside the
control of the Sellers or any breach of the representations and warranties
contained in the first sentence of Section 3.01, the first sentence of Section
3.02, and Sections 3.03, 3.15, 3.23 and 3.25 (collectively, the "Excluded
--------
Claims"), all of which shall be indemnified on a dollar-for-dollar basis. No
- ------
Indemnified Party shall be indemnified pursuant to this Section 9.03 (other than
the Excluded Claims) with respect to any item of liability or damage if the
aggregate of all liabilities and damages of the Indemnified Parties for which
the Indemnified Parties have received indemnification pursuant to this Section
9.03 shall have exceeded an amount equal to the Adjusted Purchase Price.
(3) Payments by the Seller pursuant to Section 9.03(a) shall be
limited to the amount of any liability or damage that remains after deducting
therefrom any insurance proceeds and any indemnity, contribution or other
similar payment recoverable by the Indemnified Party from any third party with
respect thereto; provided, however, that the reduction for insurance proceeds
-------- -------
shall itself be reduced by the present value of the Purchaser's reasonably
estimated increase in insurance costs directly attributable to the claim in
respect of which such insurance proceeds shall have been received for the five
years following the receipt of such proceeds using a discount rate of six
percent.
(4) An Indemnified Party shall give the Seller reasonably prompt
written notice of any claim, assertion, event or proceeding by or in respect of
a third party of which such Indemnified Party has knowledge concerning any
liability or damage as to which such Indemnified Party may request
indemnification hereunder. Failure to give such notice shall not waive any right
to indemnification on the part of the Indemnified Party or Parties who fail to
give such notice, except only to the extent of any damage or loss actually
suffered by the Seller by reason of the delay in receiving such notice. The
Seller shall have the right to direct, through counsel of its own choosing,
provided such counsel is reasonably satisfactory to the Indemnified Party, the
defense or settlement of any such claim or proceeding at its own expense,
provided that the Seller vigorously and diligently pursues such defense in good
faith and keeps the Indemnified Party and its attorneys reasonably informed as
to the progress of the defense and any proposed settlement. If the Seller elects
to assume the defense of any such claim or proceeding, the Indemnified Party may
participate in such defense, but in such case the expenses of the Indemnified
Party shall be paid by the Indemnified Party. The Indemnified Party shall
provide the Seller with access to such Indemnified Party's records and personnel
relating to any such claim, assertion, event or proceeding during normal
business hours and shall otherwise cooperate with the Seller in the defense or
settlement thereof, and the Seller shall reimburse the Indemnified Party for all
the reasonable out-of-pocket expenses of such Indemnified Party in
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<PAGE>
connection therewith. If the Seller elects to direct the defense of any such
claim or proceeding, the Indemnified Party shall not pay, or permit to be paid,
any part of any claim or demand arising from such asserted liability (i) unless
the Seller consents in writing to such payment, which consent will not be
unreasonably withheld, but if such consent is not given in the case of a
settlement proposal, the Seller will post a letter of credit from a bank
reasonably satisfactory to the Purchaser in the amount of such proposed
settlement, or (ii) unless the Seller, subject to the last sentence of this
Section 9.03(d), withdraws from the defense of such asserted liability, or (iii)
unless a final judgment from which no appeal may be taken by or on behalf of the
Seller is entered against the Indemnified Party for such liability or (iv)
unless there is a material risk if such asserted liability is not paid that an
injunction or other equitable relief will be granted which will materially
adversely affect the business of the Purchaser or the Company or there is a
material risk of the seizure of any material asset of the Purchaser or the
Company or a material risk that a lien or liens will be imposed on any such
material asset. The Seller shall have the right, in its discretion exercised in
good faith and with the advice of counsel, to settle any such claim with the
prior written consent of the Indemnified Party, which consent shall not be
unreasonably withheld; provided that the Indemnified Party may withhold its
consent to any settlement if, in its reasonable judgment, such settlement would
adversely affect the conduct of the business of the Purchaser or the Company or
does not include a general release to all Indemnified Parties. If the Seller
shall fail to defend, or if after commencing or undertaking any such defense,
fail to diligently prosecute and defend or withdraws from such defense, the
Indemnified Party shall have the right to undertake the defense or settlement
thereof, at the Seller's expense. If the Indemnified Party assumes the defense
of any such claim or proceeding pursuant to this Section 9.03(d) and proposes to
settle such claim or proceeding prior to a final judgment thereon or to forego
any appeal with respect thereto, then the Indemnified Party shall give the
Seller prompt written notice thereof and the Seller shall have the right to
participate in the settlement or assume or reassume the defense of such claim or
proceeding subject to the conditions set forth above; provided that if the
Seller does not assume or reassume the defense within ten Business Days or any
earlier time that such offer to settle expires and post a letter of credit from
a bank reasonably satisfactory to the Purchaser in the amount of the proposed
settlement, then the Indemnified Party can settle such claim in good faith
without the consent of the Seller.
(5) Except as set forth in this Agreement, the Disclosure Schedule,
the Escrow Agreement, the certificates delivered pursuant to Article VII or any
agreement delivered pursuant to the provisions hereof, the Seller is not making
any representation, warranty, covenant or agreement with respect to the matters
contained herein.
SECTION 1.84. Other Provisions Relating to Indemnification. (a)
--------------------------------------------
Each of the parties hereby acknowledges and agrees that its sole and exclusive
remedy with respect to any and all claims relating to the subject matter of this
Agreement, except any claim for fraud or arising from the obligation of such
party to close the transactions contemplated by this Agreement in accordance
with its terms, shall be pursuant to the indemnification provisions set
76
<PAGE>
forth in this Agreement. In furtherance of the foregoing, each of the parties
hereby waives, to the fullest extent permitted under applicable law, any and all
rights, claims and causes of action it may have against the other party arising
under or based upon any federal, state or local statute, law, ordinance, rule or
regulation (including, without limitation, any such rights, claims or causes of
action arising under or based upon common law or otherwise but excluding fraud)
other than such rights, claims or causes of action arising under the
indemnification provisions of this Agreement.
TERMINATION, AMENDMENT AND WAIVER
SECTION 1.85. Termination. This Agreement may be terminated at any
-----------
time prior to the Closing:
(1) by the mutual written consent of the Seller and the Purchaser;
(2) by written notice by either the Seller or the Purchaser if the
Closing shall not have occurred prior to September 30, 1999; provided, however,
-------- -------
that the right to terminate this Agreement under this Section 10.01(b) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement shall have been the cause of, or shall have resulted in, the failure
of the Closing to occur prior to such date;
(3) by the Purchaser, if the Seller shall have breached or failed in
any material respect to perform or comply with any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform or comply (A) would give rise to the failure of a
condition set forth in Section 8.02, and (B) is incapable of being cured by the
Seller;
(4) by the Purchaser, if the Seller or any of its directors or
officers shall take any action in breach of Section 5.08;
(5) by the Seller, if the Purchaser shall have breached or failed in
any material respect to perform or comply with any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach or failure to perform or comply (A) would give rise to the failure of a
condition set forth in Section 8.01, and (B) is incapable of being cured by the
Purchaser; or
(6) by the Seller in accordance with Section 5.08(b); provided that,
--------
in order for the termination of this Agreement pursuant to this paragraph (f) to
be deemed effective, the Seller shall have complied with all provisions
contained in Section 5.08, including the notice
77
<PAGE>
provisions therein, and with applicable requirements of Section 5.09, including
the payment of the Termination Fee.
(7) by the Purchaser, if Fleet National Bank shall not have delivered
the Lender Commitment within the time prescribed by Section 5.14(b) hereof.
(8) by the Seller if First Chicago has not approved the Closing Note
on or before the sixtieth day after the date hereof.
SECTION 1.86. Effect of Termination. In the event of termination
---------------------
of this Agreement as provided in Section 10.01, this Agreement shall forthwith
become void and there shall be no liability on the part of any party hereto,
except (a) as set forth in Sections 5.04 and 5.09 and (b) nothing herein shall
relieve either party from liability for any breach hereof.
SECTION 1.87. Waiver. At any time prior to the Closing, either
------
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties contained herein or in any document
delivered pursuant hereto or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party to be bound thereby.
GENERAL PROVISIONS
SECTION 1.88. Notices. All notices and other communications given
-------
or made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of (i) the date delivered if delivered personally against
written receipt or (ii) five days after mailing if mailed by registered or
certified mail (postage prepaid, return receipt requested) or (iii) the date
telecopied to the parties (if the appropriate answerback or telephonic
confirmation) shall have been received; provided that notices after the giving
-------- ----
of which there is a designated period within which to perform an act and notices
of changes of address shall be effective only upon receipt. All such notices and
communications shall be delivered to the following addresses or numbers (or at
such other address or number for a party as shall be specified by like notice):
(a) if to the Seller:
The Centris Group, Inc.
650 Town Center Drive
78
<PAGE>
Suite 1600
Costa Mesa, CA 92626
Attention: General Counsel
Telecopier: (714) 434-0750
with a copy under separate cover to:
Baker & Daniels
300 N. Meridian Street
Suite 2700
Indianapolis, IN 46204
Attention: Tibor D. Klopfer
Telecopier: (317) 237-1000
(b) if to the Purchaser:
Folksamerica Group
One Liberty Plaza
Nineteenth Floor
New York, N.Y. 10006
Attention: President
Telecopier: (212) 385-3678
with a copy under separate cover to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, N.Y. 10178-0060
Attention: F. Sedgwick Browne
Telecopier: (212) 309-6273
SECTION 1.89. Public Announcement. No party to this Agreement shall
-------------------
make any public announcements in respect of this Agreement or the transactions
contemplated herein or otherwise communicate with any news media without prior
notification to the other party, and the parties, subject to the requirements of
applicable law, shall cooperate as to the timing and content of any such
announcement. The parties agree that, except as required by applicable law, in
the event this Agreement is terminated in accordance with Article X hereof, each
party will keep confidential the reasons for such termination and any public
announcement issued by either party following any such termination shall be
limited to a statement that the parties were unable to agree on the principal
terms of the transaction.
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SECTION 1.90. Headings. The headings contained in this Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 1.91. Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 1.92. Entire Agreement. This Agreement (including the
----------------
Exhibits and Disclosure Schedule) constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and undertakings, both written and oral, except as otherwise
expressly provided herein.
SECTION 1.93. Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise; provided, however, that this Agreement may be
-------- -------
assigned, in whole or in part, by the Purchaser to its subsidiary, Folksamerica
Reinsurance Company, so that Folksamerica Reinsurance Company may buy a portion
or all of the Shares, without releasing the Purchaser from any of its other
obligations or liabilities hereunder.
SECTION 1.94. No Third-Party Beneficiaries. Except for the
----------------------------
provisions of this Agreement relating to Indemnified Parties, this Agreement is
for the sole benefit of and is binding upon the parties hereto and their
permitted successors and assigns and nothing herein, express or implied, is
intended to or shall confer upon any other person or entity any legal or
equitable right, benefit or remedy of any nature whatsoever under or by reason
of this Agreement.
SECTION 1.95. Amendment; Waiver. This Agreement may not be amended
-----------------
or modified except by an instrument in writing signed by the Seller and the
Purchaser. Waiver of any term or condition of this Agreement shall only be
effective if in writing and shall not be construed as a waiver of any subsequent
breach or waiver of the same term or condition, or a waiver of any other term or
condition of this Agreement. Any failure or delay on the part of any party in
exercising any power or right hereunder shall not operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power preclude any
other or further exercise thereof or the exercise of any other right or power
hereunder.
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<PAGE>
SECTION 1.96. Governing Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State of New York, other than
any conflict of law rules which might result in the application of the laws of
any other jurisdiction.
SECTION 1.97. Counterparts. This Agreement may be executed in one
------------
or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
THE CENTRIS GROUP, INC.
By _____________________________________
Name: David L. Cargile
Title: Chairman, President and CEO
FOLKSAMERICA HOLDING COMPANY, INC.
By _____________________________________
Name: Steven E. Fass
Title: President & CEO
81
<PAGE>
EXHIBIT 10.01
SIXTH AMENDMENT
TO THE
CREDIT AGREEMENT
Dated as of June 17, 1999
This SIXTH AMENDMENT dated as of June 17, 1999 (this "Sixth Amendment") is
between THE CENTRIS GROUP, INC., a Delaware corporation, formerly known as US
Facilities Corporation (the "Borrower"), and FLEET NATIONAL BANK, a national
banking association, formerly known as Shawmut Bank Connecticut, N.A. and Fleet
National Bank of Connecticut (the "Bank").
PRELIMINARY STATEMENTS. The Borrower and the Bank entered into a Credit
Agreement dated as of December 20, 1994, which agreement was amended by a First
Amendment to the Credit Agreement dated as of March 29, 1996, a Second Amendment
to the Credit Agreement dated as of July 1, 1996, a Third Amendment to the
Credit Agreement dated as of September 30, 1998, a Fourth Amendment to the
Credit Agreement (Amending and Restating the Credit Agreement) dated as of
October 26, 1998 and a Fifth Amendment to the Credit Agreement (Amending and
Restating the Credit Agreement) dated as of December 28, 1998 (as so amended the
"Credit Agreement"). The Borrower has requested the Bank to waive certain
Events of Default and to amend certain covenants and has agreed to a revision of
the schedule of commitment reductions under the Credit Agreement. The Bank is
agreeable to the Borrower's request subject to certain terms and conditions.
Accordingly, the Borrower and the Bank agree as follows:
Section 1. Amendments to the Credit Agreement. Effective as of the
----------------------------------
effective date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 3 hereof, the Credit Agreement is hereby amended
as follows:
(a) The definition of "Applicable Margin" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Applicable Margin" means:
(a) with respect to Base Rate Loans, the rate per annum for each
rating level period set forth in the schedule below:
-1-
<PAGE>
Applicable Margin
-----------------
Level I Period 1.00%
Level II Period .75%
Level III Period .50%
(b) with respect to CD Rate Loans, the rate per annum for each rating
level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period 2.625%
Level II Period 2.375%
Level III Period 2.125%
(c) with respect to Eurodollar Rate Loans, the rate per annum for
each rating level period set forth in the schedule below:
Applicable Margin
-----------------
Level I Period 1.25%
Level II Period 1.00%
Level III Period .75%
(b) The definition of "Level I Period" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Level I Period" shall mean any period during which the consolidated
Debt of the Borrower and its Subsidiaries is greater than or equal to
20% of its Total Capitalization.
-2-
<PAGE>
(c) The definition of "Level II Period" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Level II Period" shall mean any period during which the consolidated
Debt of the Borrower and its Subsidiaries is greater than or equal to
15% and less than 20% of its Total Capitalization.
(d) The following definition shall be added after the definition of "Level
II Period" in Section 1.1 of the Credit Agreement:
"Level III Period" shall mean any period during which the consolidated
Debt of the Borrower and its Subsidiaries is less than 15% of its
Total Capitalization.
(e) The following definition shall be added after the definition of "Lien"
in Section 1.1 the Credit Agreement:
"Life Net Premiums Written" for any period means the combined net
premiums of each Insurance Subsidiary of the Borrower which conducts a
life insurance business. On the annual SAP Financial Statements form
for life companies, for the year ended December 31, 1998, the net
premiums appear on line 20d, column (1) on page 8 thereof.
(f) The definition of "Pledge Agreements" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Pledge Agreements" mean collectively the Seaboard Pledge Agreement,
USF RE Pledge Agreement, the VASA North Atlantic Pledge Agreement and
the USFIC Pledge Agreement (upon its due execution).
(g) The following definition shall be added after the definition of
"Property" in Section 1.1 of the Credit Agreement:
"Property and Casualty Net Premiums Written" for any period means the
combined net property and casualty premiums of each Insurance
Subsidiary of the Borrower which conducts a property and casualty
business. On the annual SAP Financial Statements form for property and
casualty companies for the year ended December 31, 1998, the net
premiums appear on line 32, column (1) on page [7] thereof.
(h) The definition of "Net Premiums Written" in Section 1.1 of the Credit
Agreement is deleted.
-3-
<PAGE>
(i) The definition of "Statutory Net Income" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Statutory Net Income" means, for any period the net income of each
Insurance Subsidiary of the Borrower that appears, or should appear,
on the SAP Financial Statements. On the respective annual SAP
Financial Statements form for life companies for the year ended
December 31, 1998, the net income amount appears on line 33, column
(1), on page 4 thereof. On the respective annual SAP Financial
Statements form for property and casualty companies for the year ended
December 31, 1998, the net income amount appears on line 16, column
(1), on page 4 thereof.
(j) The definition of "Statutory Surplus" in Section 1.1 of the Credit
Agreement is replaced with the following:
"Statutory Surplus" of any Insurance Subsidiary means, for any period,
the surplus of such Insurance Subsidiary that appears, or should
appear, on the SAP Financial Statements of such Insurance Subsidiary.
On the annual SAP Financial Statements form prescribed for life
companies for the year ended December 31, 1998, such amount appears on
line 37, column (1), on page 3 thereof. On the annual SAP Financial
Statements form prescribed for property and casualty companies for the
year ended December 31, 1998, such amount appears on line 27, column
(1), on page 3 thereof.
(k) The following definition shall be added after the definition of
"USFIC" in Section 1.1 of the Credit Agreement:
"US Holdings Guaranty" means the Guaranty Agreement duly executed by
US Holdings, Inc., a Delaware corporation, and delivered to the Bank
in form and substance satisfactory to the Bank.
(l) The following definition shall be added after the definition of "US
Holdings Guaranty" in Section 1.1 of the Credit Agreement:
"USFIC Pledge Agreement" means the Pledge Agreement duly executed by
US Holdings, Inc. and delivered to the Bank in form and substance
satisfactory to the Bank.
-4-
<PAGE>
(m) Subsection (a) of Section 2.1 (The Revolving Loans) of the Credit
---------------------------------------------------
Agreement is replaced with the following:
(a) Subject to the terms and conditions of this Agreement, the Bank
agrees to make revolving loans to the Borrower (hereinafter
collectively referred to as "Revolving Loans") from time to time
from and including the date hereof until the earlier of the
Revolving Loan Termination Date or the termination of the
Commitment of the Bank, up to, but not exceeding in the aggregate
principal amount at any one time outstanding, the amount of
SEVENTY-TWO MILLION FIVE HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($72,550,000.00). The Commitment is subject to mandatory
reduction as set forth in Section 2.5.
(n) Section 2.1 (The Revolving Loans) of the Credit Agreement is amended
---------------------------------
to add the following Subsection (c):
(c) The Borrower shall not have any Borrowings outstanding after
September 30, 1999 unless on or prior to September 30, 1999, the
Bank shall have received (i) the USFIC Pledge Agreement duly
executed by the Borrower, dated on or prior to September 30, 1999
together with appropriate stock certificates, undated stock
powers executed in blank and Uniform Commercial Code financing
statements relating thereto, (ii) a favorable opinion of counsel
to the Borrower dated the date of the USFIC Pledge Agreement in
form and substance satisfactory to the Bank and its special
counsel, (iii) a copy of each consent, license approval and
notice required in connection with the execution, delivery,
performance, validity and enforceability of the USFIC Pledge
Agreement, (iv) a certificate of the Secretary or Assistant
Secretary of US Holdings, Inc., dated the date of the USFIC
Pledge Agreement, attesting on behalf of US Holdings, Inc. to all
corporate action taken by it, including resolutions of its Board
of Directors authorizing the execution, delivery and performance
of the USFIC Pledge Agreement and each other document to be
delivered pursuant to the USFIC Pledge Agreement, and attesting
that its Certificate of Incorporation and Bylaws have not been
amended since the date of their prior delivery to the Bank and
are in full force and effect and attesting to the names and true
signatures of the officers of US Holdings, Inc. authorized to
sign the USFIC Pledge Agreement and the other documents delivered
by US Holdings, Inc. and (iv) such other
-5-
<PAGE>
documents, certificates and opinions as the Bank or its special
counsel may reasonably request.
(o) Section 2.5 (Mandatory Reduction of Commitment) of the Credit
-----------------------------------------------
Agreement is replaced with the following:
(a) The Commitment of the Bank to make Revolving Loans shall be
automatically and permanently reduced by the amount of
$47,550,000 on the earlier to occur of (i) the receipt by the
Borrower or any Subsidiary of the Net Available Proceeds realized
upon the USF RE Sale or (ii) June 30, 1999. Upon receipt by the
Bank of the principal payment under the Credit Agreement of
$47,550,000, the reduction of the Bank's Commitment to
$25,000,000 pursuant to this Section 2.5(a) and the receipt by
the Bank of all opinions delivered by the Borrower or any of its
counsel in connection with the USF RE Sale containing appropriate
language allowing the Bank to rely on such opinions, the Bank
shall release the pledge of the shares of USF RE.
(b) Commencing March 31, 2000 and continuing on each succeeding June
30, September 30, December 31 and March 31 thereafter until the
Revolving Loan Termination Date, the Commitment of the Bank to
make Revolving Loans shall be automatically and permanently
reduced by $1,500,000 except that on the Revolving Loan
Termination Date, the Commitment shall be automatically and
permanently reduced to zero.
(c) On the effective date of each reduction of the Commitment of the
Bank pursuant to Section 2.5(a) and (b) the Borrower shall repay
such principal amount (together with accrued interest thereon and
any amount due pursuant to Section 2.7(b)) of outstanding
Revolving Loans, if any, as may be necessary so that after such
repayment, the aggregate unpaid principal amount of the Revolving
Loans does not exceed the Commitment as then reduced.
(p) Clause (b) of the Proviso in Section 7.5 (Mergers and Consolidations
--------------------------------------------------------------------
and Acquisitions of Assets) of the Credit Agreement is replaced with the
- ---------------------------
following:
(b) the aggregate purchase price and other consideration paid or
payable by the Borrower for all such mergers and/or acquisitions
shall not exceed $5,000,000 in the aggregate during the term of
this Agreement.
-6-
<PAGE>
(q) Section 7.9 (Capital Expenditures) of the Credit Agreement is replaced
----------------------------------
with the following:
Make or permit to be made any Capital Expenditure in any fiscal year,
or commit to make any Capital Expenditure in any fiscal year, which
when added to the aggregate Capital Expenditures of the Borrower and
its Subsidiaries theretofore made or committed to be made in that
fiscal year, would exceed $1,500,000.
(r) Section 7.11 (Minimum Consolidated GAAP Net Worth) of the Credit
--------------------------------------------------
Agreement is replaced with the following:
As of the end of any fiscal quarter, commencing with the quarter
ending September 30, 1999, permit Consolidated GAAP Net Worth of the
Borrower and its Subsidiaries to be less than an amount equal to the
sum of (a) $78,000,000, plus (b) 50% of cumulative positive net income
(as determined in accordance with GAAP) for each fiscal quarter
following the fiscal quarter ending June 30, 1998, plus (c) the amount
of paid-in capital resulting from any issuance by the Borrower of its
capital stock after June 17, 1999.
(s) Section 7.12 (Maximum Premiums to Surplus) of the Credit Agreement is
------------------------------------------
replaced with the following:
(i) As of the end of each fiscal quarter, permit the ratio of
combined Property and Casualty Net Premiums Written of all of the
Insurance Subsidiaries of the Borrower for the immediately preceding
four fiscal quarters (ending on such date) to combined Statutory
Surplus of such Insurance Subsidiaries at the end of such fiscal
quarter to be greater than 2.0 to 1.
(ii) As of the end of each fiscal quarter, permit the ratio of
combined Life Net Premiums Written of all of the Insurance
Subsidiaries of the Borrower for the immediately preceding four fiscal
quarters (ending on such date) to combined Statutory Surplus of such
Insurance Subsidiaries at the end of such fiscal quarter to be greater
than 5.0 to 1.
(t) Section 7.14 (Minimum Interest Coverage) of the Credit Agreement is
----------------------------------------
replaced with the following:
As of the end of each fiscal quarter during the periods set forth
below, for each Insurance Subsidiary, permit the ratio of (a) the sum
of (i) Available
-7-
<PAGE>
Dividends, minus dividends paid by such Insurance Subsidiary to the
Borrower for the immediately preceding four fiscal quarters (ending on
such date), plus (ii) an amount equal to the aggregate consolidating
GAAP EBIT of the Borrower and all Subsidiaries (eliminating
intercompany balances and transactions, as applicable), except the
Insurance Subsidiaries, for the immediately preceding four fiscal
quarters (ending on such date) to (b) Interest Expense for the
immediately succeeding four fiscal quarters (beginning on such date)
to be less than (i) 2.0 to 1 for the fiscal year ending December 31,
1995, and (ii) 3.0 to 1 for each fiscal year thereafter. For purposes
of clause (b) above, Interest Expense shall be calculated on the
assumption that Base Rate Loans for the full amount of the Commitment
will be outstanding for the succeeding four fiscal quarters.
(u) Section 7.15 (Minimum Fixed Charge Coverage) of the Credit Agreement
--------------------------------------------
is replaced with the following:
As of the end of each fiscal quarter during the periods set forth
below, for each Insurance Subsidiary, permit the ratio of (a) the sum
of (i) Available Dividends, minus dividends paid by such Insurance
Subsidiary to the Borrower for the immediately preceding four fiscal
quarters (ending on such date), plus (ii) an amount equal to the
aggregate consolidating GAAP EBIT of the Borrower and all Subsidiaries
(eliminating intercompany balances and transactions, as applicable),
except Insurance Subsidiaries, for the immediately preceding four
fiscal quarters (ending on such date) to (b) Fixed Charges for the
immediately succeeding four fiscal quarters (beginning on such date)
to be less than (i) 1.5 to 1 for the fiscal year ending December 31,
1995, and (ii) 1.7 to 1 for each fiscal year thereafter. For purposes
of clause (b) above, Interest Expense shall be calculated on the
assumption that Base Rate Loans for the full amount of the Commitment
will be outstanding for the succeeding four fiscal quarters.
(v) Section 7.16 (Minimum Debt Service Coverage) of the Credit Agreement
--------------------------------------------
is replaced with the following:
As of the end of each fiscal quarter, permit the Debt Service Coverage
Ratio for each Insurance Subsidiary for the immediately preceding four
fiscal quarters (ending on such date) to be less than 1.2 to 1.
(w) Section 7.21 (Debt to Capital Ratio) of the Credit Agreement is
------------------------------------
replaced with the following:
-8-
<PAGE>
Permit the consolidated Debt of the Borrower and its Subsidiaries to
exceed 45% of Total Capitalization during the period December 28, 1998
to and including June 30, 1999 or 25% of Total Capitalization after
June 30, 1999.
(x) The following section is added after Section 7.21 of the Credit
Agreement:
Section 7.22. Investment in Subsidiaries. Permit any Investment by
--------------------------
the Borrower in Subsidiaries in an amount greater than $10,000,000 in
the aggregate during any twelve-month period commencing June 17, 1999.
(y) Schedule 1.1 (Commitments and Lending Offices) of the Credit Agreement
----------------------------------------------
is replaced with Schedule 1.1 attached hereto.
(z) Exhibit A (Revolving Note) of the Credit Agreement is replaced with
--------------------------
Exhibit A attached hereto.
(aa) Exhibit C (Officer's Certificate) of the Credit Agreement is replaced
---------------------------------
with Exhibit C attached hereto.
Section 2. Waivers.
-------
(a) The Bank hereby waives, effective as of the date hereof, the Events of
Default that occurred under the Credit Agreement as a result of the failure of
the Borrower to comply with Sections 7.11, 7.14, 7.15 and 7.16 of the Credit
Agreement for the fiscal quarters ended December 31, 1998 and March 31, 1999.
(b) Except as otherwise expressly provided for herein, nothing in this
Sixth Amendment shall extend to or affect in any way any of the Borrower's
obligations or the Bank's rights and remedies arising under the Credit Agreement
or the Revolving Note, and the Bank shall not be deemed to have waived any of
the Bank's rights or remedies with respect to any Event of Default or event or
condition which, with notice or the lapse of time, or both would become an Event
of Default and which upon the Borrowers' execution and delivery of this Sixth
Amendment might otherwise exist or which might hereafter occur.
Section 3. Conditions of Effectiveness. This Sixth Amendment shall become
---------------------------
effective when, and only when, the Bank shall have received a counterpart of
this Sixth
-9-
<PAGE>
Amendment executed by the Borrower and shall have additionally received, in form
and substance satisfactory to the Bank:
(a) A certificate of a Senior Officer of the Borrower stating that:
(i) the representations and warranties contained in Article 5 of the
Credit Agreement are correct on and as of the date of such certificate
as though made on and as of such date (or, if such representation or
warranty is expressly stated to have been made as of a specific date,
as of such specific date);
(ii) other than the Events of Default identified in Section 2(a)
above, no Event of Default or Default has occurred and is continuing
or would result from the signing of this Sixth Amendment or the
transactions contemplated thereby; and
(iii) there has been no material adverse change in the financial
condition, operations, Properties, business or business prospects of
the Borrower and its Subsidiaries, if any, since March 31, 1999.
(b) A Revolving Note for the account of the Bank duly executed by the
Borrower.
(c) A certificate of the Secretary or Assistant Secretary of the Borrower,
dated the Amendment Closing Date, attesting on behalf of the Borrower to all
corporate action taken by the Borrower, including resolutions of its Board of
Directors authorizing the execution, delivery and performance of this Sixth
Amendment, the Revolving Note and each other document to be delivered pursuant
to this Sixth Amendment, and attesting to the names and true signatures of the
officers of the Borrower authorized to sign this Sixth Amendment, the Revolving
Note and the other documents to be delivered by the Borrower under this Sixth
Amendment.
(d) The US Holdings Guaranty duly executed by US Holdings, Inc.
(e) A certificate of the Secretary or Assistant Secretary of US Holdings,
Inc., dated the date of the Amendment Closing Date, attesting on behalf of US
Holdings, Inc. to all corporate action taken by it, including resolutions of its
Board of Directors authorizing the execution, delivery and performance of the US
Holdings Guaranty and each other document to be delivered pursuant to the US
Holdings Guaranty, and attesting that its Certificate of Incorporation and
Bylaws are in full force and effect and are attaching true and correct copies of
such documents and attesting to the names and
-10-
<PAGE>
true signatures of the officers of US Holdings, Inc. authorized to sign the US
Holdings Guaranty and the other documents delivered by US Holdings, Inc. and
(f) A certificate of good standing, including a tax good standing, for US
Holdings, Inc. from the Secretary of the State of the state of its
incorporation.
(g) A favorable opinion of R.W. Loeb, Professional Law Corporation,
counsel to the Borrower, dated the effective date hereof, in form and substance
satisfactory to the Bank and its special counsel.
(h) Payment to the Bank of an amendment fee in the amount of $37,500.
(i) Payment to Day, Berry & Howard LLP, special counsel to the Bank, of
its legal fees and disbursements.
(j) All information and documents relating to the Borrower, as the Bank
may reasonably request, all in form and substance satisfactory to the Bank and
its special counsel.
Section 4. Representations and Warranties of the Borrower. The Borrower
----------------------------------------------
represents as follows:
(a) The execution, delivery and performance by the Borrower of this Sixth
Amendment have been duly authorized by all necessary corporate action and do not
and will not (i) require any consent or approval of its shareholders; (ii)
violate any provisions of its articles of incorporation or by-laws; (iii)
violate any provision of, or require any filing, registration, consent or
approval under, any law, rule, regulation (including without limitation,
Regulation U and X), order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to and binding upon the Borrower
or any Subsidiary; (iv) result in a breach of or constitute a default or require
any consent under any indenture or loan or credit agreement or any other
material agreement, lease or instrument to which the Borrower or any Subsidiary
is a party or by which it or its Properties may be bound; or (v) result in, or
require, the creation or imposition of any Lien upon or with respect to any of
the Properties now owned or hereafter acquired by the Borrower.
(b) No authorization, consent, approval, order, license or permit from, or
filing, registration or qualification with, or exemption by, any governmental or
public body or authority, or any subdivision thereof, or any other Person,
including without limitation, the California or Massachusetts Insurance
Commissioner, is required to authorize, or is required in connection with the
execution, delivery and performance by the Borrower of, or the legality,
validity, binding effect or enforceability of, this Sixth Amendment.
-11-
<PAGE>
(c) This Sixth Amendment constitutes the legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
its terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally and by general principles of equity.
(d) No actions, suits or proceedings or investigations (other than routine
examinations performed by insurance regulatory authorities) are pending or, to
the knowledge of the Borrower, threatened against or affecting the Borrower or
any Subsidiary, or any Property of any of them before any court, governmental
agency or arbitrator, which if determined adversely to the Borrower or any
Subsidiary would in any one case or in the aggregate, materially adversely
affect the financial condition, operations, Properties, business or, to the
knowledge of the Borrower, prospects of the Borrower and its Subsidiaries taken
as a whole or the ability of the Borrower to perform its obligations under the
Credit Agreement, as amended by this Sixth Amendment.
(e) No information, exhibit or report furnished in writing by or on behalf
of the Borrower or any officer or director of the Borrower to the Bank in
connection with the negotiation of, or pursuant to the terms of, this Sixth
Amendment contained when made any material misstatement of fact or omitted to
state a material fact necessary to make the statements contained therein not
misleading.
(f) In connection with the USF RE Sale, upon the sale of USF RE, all of
the issued and outstanding shares of the capital stock of US Holdings, Inc. will
be dividended to the Borrower by USF RE and the Borrower will then own all of
the issued and outstanding shares of the capital stock of US Holdings, Inc. and
US Holdings, Inc. will own all of the issued and outstanding shares of the
capital stock of USFIC.
Section 5. Reference to and Effect on the Credit Agreement.
-----------------------------------------------
(a) Upon the effectiveness of this Sixth Amendment, on and after the date
hereof, each reference in the Credit Agreement to "this Credit Agreement",
"hereunder", "hereof", "herein" or words of like import shall mean and be a
reference to the Credit Agreement as amended thereby.
(b) Except as specifically amended above, the Credit Agreement shall
remain in full force and effect and is hereby ratified and confirmed.
-12-
<PAGE>
(c) The execution, delivery and effectiveness of this Sixth Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank under the Credit Agreement, nor constitute a
waiver of any provision of the Credit Agreement.
Section 6. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all costs and expenses of the Bank in connection with the preparation,
execution and delivery of this Sixth Amendment and the other instruments and
documents to be delivered hereunder, including, without limitation, the
reasonable fees and out-of-pocket expenses of counsel for the Bank with respect
thereto and with respect to advising the Bank as to its rights and
responsibilities hereunder and thereunder. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Sixth Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
Section 7. Execution in Counterparts. This Sixth Amendment may be
-------------------------
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
Section 8. Governing Law. This Sixth Amendment shall be governed by, and
-------------
construed in accordance with, the laws of the State of Connecticut.
Section 9. Defined Terms. Capitalized terms used herein which are not
-------------
expressly defined herein shall have the meanings ascribed to them in the Credit
Agreement.
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE CENTRIS GROUP, INC.
By________________________________
Name:
Title:
FLEET NATIONAL BANK
By________________________________
Name:
Title:
-14-
<PAGE>
SCHEDULE 1.1
COMMITMENTS AND LENDING OFFICES
-------------------------------
<TABLE>
<CAPTION>
Percentage
Name and Address of Type of
of Bank Commitment Commitments Loans
- ---------------- ---------- ----------- ---------
<S> <C> <C> <C>
Fleet National Bank Revolving Loans 100% Base Rate
777 Main Street $72,550,000 Eurodollar Rate
Hartford, Connecticut 06115 CD Rate
</TABLE>
-15-
<PAGE>
EXHIBIT A
REVOLVING NOTE
$72,550,000 Hartford, Connecticut
June __, 1999
THE CENTRIS GROUP, INC., formerly known as US Facilities Corporation (the
"Borrower"), for value received, hereby unconditionally promises to pay to the
order of FLEET NATIONAL BANK, a national banking association, formerly known as
Shawmut Bank Connecticut, N.A. and Fleet National Bank of Connecticut (the
"Bank") at its office located at 777 Main Street, Hartford, Connecticut 06115,
for the account of the appropriate Lending Office of the Bank, the principal sum
of SEVENTY-TWO MILLION FIVE HUNDRED FIFTY THOUSAND AND NO/100 Dollars
($72,550,000) or, if less, the unpaid principal amount loaned by the Bank to the
Borrower pursuant to the Agreement referred to below, in lawful money of the
United States of America and in immediately available funds, on the date(s) and
in the manner provided in said Agreement. The Borrower also promises to pay
interest on the unpaid principal balance hereof, for the period such balance is
outstanding, at said principal office for the account of said Lending Office, in
like money, at the rates of interest, on the date(s) and in the manner provided
in said Agreement; and to pay interest on any overdue principal and interest at
the Default Rate.
The date, type, amount and maturity date of each Revolving Loan made by the
Bank to the Borrower under the Agreement referred to below, and each payment of
principal thereof, shall be recorded by the Bank on its books and, prior to any
transfer of this Revolving Note (or, at the discretion of the Bank, at any other
time), endorsed by the Bank on the schedule attached hereto or any continuation
thereof or otherwise recorded and maintained in its internal records.
This is the Revolving Note referred to in that certain Credit Agreement
dated as of December 20, 1994 (as heretofore amended and hereafter amended from
time to time, the "Agreement") between the Borrower and the Bank and evidences
the Revolving Loans made by the Bank thereunder and is secured by the Pledge
Agreements as set forth in the Agreement and is entitled to the benefits
thereof. All terms not defined herein shall have the meanings given to them in
the Agreement.
The Agreement provides for the acceleration of the maturity of this
Revolving Note upon the occurrence of certain Events of Default and for
prepayments on the terms and conditions specified therein.
<PAGE>
The Borrower waives presentment, notice of dishonor, protest and any other
notice or formality with respect to this Revolving Note.
No waiver of any right or remedy under this Revolving Note shall in any
event be effective unless the same shall be in writing and signed by the Bank
and the Borrower, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
In accordance with the provisions of the Agreement, the Borrower shall
reimburse the Bank on demand for all reasonable costs, expenses and charges
(including without limitation, reasonable fees and charges of external legal
counsel for the Bank and costs allocated by the Bank's internal legal
department) incurred by the Bank in connection with the preparation, performance
or enforcement of this Revolving Note.
This Revolving Note shall be binding on the Borrower and its permitted
successors and assigns and shall inure to the benefit of the Bank and its
permitted successors and assigns, provided that the Borrower may not delegate
--------
any obligations hereunder without the prior written consent of the Bank.
This Revolving Note shall be governed by, and interpreted and construed in
accordance with, the laws of the State of Connecticut.
THE BORROWER EXPRESSLY ACKNOWLEDGES THAT THE REVOLVING LOANS EVIDENCED HEREBY
ARE PART OF A COMMERCIAL TRANSACTION AS SUCH TERM IS USED AND DEFINED IN CHAPTER
903a OF THE CONNECTICUT GENERAL STATUTES AND HEREBY VOLUNTARILY AND KNOWINGLY
WAIVES ANY AND ALL RIGHTS WHICH ARE OR MAY BE CONFERRED UPON IT UNDER CHAPTER
903a OF SAID STATUTES (OR ANY OTHER STATUTE AFFECTING PREJUDGMENT REMEDIES) TO
ANY NOTICE OR HEARING OR PRIOR COURT ORDER OR THE POSTING OF ANY BOND PRIOR TO
ANY PREJUDGMENT REMEDY WHICH THE BANK MAY USE. THE BORROWER ACKNOWLEDGES THAT
IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE WITH RESPECT TO THIS TRANSACTION
AND THE REVOLVING LOANS.
IN WITNESS WHEREOF, the undersigned has caused this Revolving Note to be
duly executed as of the day and year first above written.
THE CENTRIS GROUP, INC.
By:______________________________
Print Name:
Print Title:
<PAGE>
Schedule to
-----------
Revolving Note
--------------
REVOLVING LOANS AND PAYMENTS
----------------------------
<TABLE>
<CAPTION>
Amount and Payments Unpaid
Type of Maturity Principal/ Principal Notation
Date Loan Date Interest Balance By
- ---- ------ ------ -------- ------- ------
<S> <C> <C> <C> <C> <C>
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
- ---- ------ ------ -------- ------- ------
</TABLE>
<PAGE>
EXHIBIT C
OFFICER'S CERTIFICATE
THE CENTRIS GROUP, INC.
Date:__________________
Pursuant to Section 6.9(a) of the Credit Agreement dated as of December 20,
1994, as amended (the "Credit Agreement") between The Centris Group, Inc.,
formerly known as US Facilities Corporation (the "Borrower"), and Fleet National
Bank, formerly known as Shawmut Bank Connecticut, N.A. and Fleet National Bank
of Connecticut (the "Bank"),
I, _______________, DO HEREBY CERTIFY on behalf of the Borrower that:
1. I am the duly elected, qualified and acting Chief Financial Officer of
the Borrower; and
2. Attached hereto as Attachment 1 is a true and correct copy of the
consolidated and consolidating SAP and GAAP financial statements of
the Borrower and its Subsidiaries as of the close of the fiscal
[year/quarter] ending __________, ____; and
3. I have reviewed the Credit Agreement and the condition and
transactions of the Borrower and its Subsidiaries for the fiscal
[year/quarter] ending _____, ____, and to the best of my knowledge the
Borrower has observed and performed all of its covenants and other
agreements, and satisfied every condition contained in the Credit
Agreement and the Revolving Note, and I have not obtained knowledge of
any condition or event which constitutes a Default or an Event of
Default, except as set forth on Attachment 2 attached hereto; and
4. Attached hereto as Attachment 3 is true and correct information (with
detailed calculations) establishing that the Borrower was in
compliance with the covenants set forth in the Credit Agreement during
the fiscal [year/quarter] ending __________ ___, ____.
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement, pursuant to which this certificate is
delivered.
<PAGE>
IN WITNESS WHEREOF, I have signed this certificate as of the date hereof on
behalf of ___________________.
By:__________________________________
Print Name:
Title: Chief Financial Officer
<PAGE>
ATTACHMENT 1
to
Officer's Certificate
Financial Statements
--------------------
for the period ending
_________________ __, ____
<PAGE>
ATTACHMENT 2
to
Officer's Certificate
Defaults and Events of Default
------------------------------
Note: If a Default or Event of Default has occurred and is continuing, a
statement as to the nature thereof and the action proposed to be taken by
the Borrower with respect thereto as required.
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 1 of 6
Computations and Information
Showing Compliance with
Sections 7.9 to 7.16, 7.18, 7.19, 7.21 and 7.22
of the
Credit Agreement
Except as otherwise defined herein, terms used herein shall have the meanings
set forth in the Credit Agreement.
<TABLE>
<CAPTION>
Section 7.9. Capital Expenditures
--------------------
<S> <C>
1. Aggregate Capital Expenditures actually made, or committed to be made,
during the fiscal year beginning [fill in date of start of fiscal year] = _________________
2. Line 1 does not exceed $1,500,000.
Section 7.10(a). Minimum Statutory Surplus
-------------------------
1. Statutory Surplus of USF RE as of the fiscal quarter ending ____ __,_____
(prior to the USF RE Sale) = _________________
2. Positive Statutory Net Income for each fiscal quarter following the
fiscal quarter ended December 31, 1995 was:
[Include data for each quarter, as applicable]
2a. The sum of positive Statutory Net Income for each of the quarters set forth
in Line 2 above = _________________
2b. 75% of line 2a = _________________
3. Contributions to surplus made by Borrower to USF RE during each fiscal
quarter following the fiscal quarter ended December 31, 1995 were:
[Include data for each quarter, as applicable]
3a. The sum of the contributions for each of the quarters
set forth in line 3 above = _________________
4. The sum of $80,000,000 and line 2b and line 3a = _________________
5. Line 1 is not less than line 4.
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 2 of 6
<TABLE>
<CAPTION>
Section 7.10(b).
<S> <C>
1. Combined Statutory Surplus of VASA North Atlantic and Seaboard
as of the fiscal quarter ending ____ __, ____ = ________________
2. Positive Statutory Net Income for each fiscal quarter following the
fiscal quarter ended June 30, 1999 was:
[Include data for each quarter, as applicable]
2a. The sum of positive Statutory Net Income for each of the quarters set forth
in Line 2 above = _________________
2b. 75% of line 2a = _________________
3. Contributions to surplus made by Borrower to VASA North Atlantic and
Seaboard during each fiscal quarter following the fiscal quarter ended June 30,
1999 were:
[Include data for each quarter, as applicable]
3a. The sum of the contributions for each of the quarters
set forth in line 3 above = _________________
4. The sum of $42,500,000 and line 2b and line 3a = _________________
5. Line 1 is not less than line 4.
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 3 of 6
<TABLE>
<CAPTION>
Section 7.11. Minimum Consolidated GAAP Net Worth
-----------------------------------
<S> <C>
1. Consolidated GAAP Net Worth as of the fiscal quarter ending
______________, _____. = _________________
2. Consolidated positive net income (as determined in accordance with GAAP)
for each fiscal quarter following the fiscal quarter ended [______] was:
[Include data for each quarter, as applicable]
2a. The sum of the positive net income for each of the quarters
set forth in Line 2 above = _________________
2b. 50% of line 2a = _________________
3. Paid-in capital resulting from any issuance by the Borrower of its
capital stock = _________________
4. The sum of $78,000,000 and line 2b and line 3 = _________________
5. Line 1 is not less than line 4.
Section 7.12(i). Maximum Premiums to Surplus
---------------------------
1. Combined Property and Casualty Net Premiums Written by all Insurance
Subsidiaries of the Borrower in the property and casualty business for the
immediately preceding four fiscal quarters (ending on [fill in ending date for
fiscal quarter]) = _________________
2. Combined Statutory Surplus of all such Insurance Subsidiaries at
the end of the fiscal quarter ending on [fill in ending date for fiscal quarter] = _________________
3. The ratio of line 1 to line 2 = _________________
4. The ratio in line 3 is not greater than 2.0 to 1 at the
end of such fiscal quarter.
Section 7.12(ii). Maximum Premiums to Surplus
---------------------------
1. Combined Life Net Premiums Written by all Insurance Subsidiaries of
the Borrower in the life business for the immediately preceding four
fiscal quarters (ending on [fill in ending date for fiscal quarter]) = _________________
2. Combined Statutory Surplus of all such Insurance Subsidiaries at
the end of the fiscal quarter ending on [fill in ending date for fiscal quarter] = _________________
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
<TABLE>
<CAPTION>
Page 4 of 6
<S> <C>
3. The ratio of line 1 to line 2 = _________________
4. The ratio in line 3 is not greater than 5.0 to 1 at the
end of such fiscal quarter.
Section 7.13. [Reserved.]
Section 7.14. Minimum Interest Coverage.
-------------------------
For each Insurance Subsidiary:
1. Available Dividends minus dividends paid by such Insurance Subsidiary
to the Borrower for the immediately preceding four fiscal quarters ending on
[fill in ending date for fiscal quarter] = _________________
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding four
fiscal quarters (ending on [fill in ending date for fiscal quarter]). = _________________
3. The sum of line 1 and line 2 = _________________
4. Interest Expense for the immediately following four fiscal
quarters (beginning on [fill in beginning date for following four fiscal
quarters]) = _________________
5. The ratio of line 3 to line 4 = _________________
6. The ratio in line 5 is not less than 2.0 to 1.0 for the fiscal
year ending December 31, 1995 (3.0 to 1.0 for each fiscal year thereafter).
Section 7.15. Minimum Fixed Charge Coverage.
-----------------------------
For each Insurance Subsidiary:
1. Available Dividends minus dividends paid by such Insurance Subsidiary
to the Borrower for the immediately preceding four fiscal quarters ending on
[fill in ending date for fiscal quarter] = _________________
2. Consolidating GAAP EBIT of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding four
fiscal quarters (ending on [fill in ending date for fiscal quarter]) = _________________
3. The sum of line 1 and line 2 = _________________
4. Fixed Charges for the immediately succeeding four fiscal quarters
(beginning on [fill in ending date for fiscal quarter]) = _________________
5. The ratio of line 3 to line 4 = _________________
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 5 of 6
<TABLE>
<CAPTION>
6. The ratio in line 5 is not less than 1.5 to 1.0 for the fiscal year
ending December 31, 1995 (1.7 to 1.0 for each fiscal year thereafter).
Section 7.16. Minimum Debt Service Coverage.
-----------------------------
For each Insurance Subsidiary
<S> <C>
1. Available Dividends of such Insurance Subsidiary as of the end of the
fiscal quarter ending on [fill in ending date for fiscal quarter] = _________________
2. Total taxes paid by such Insurance Subsidiary to the Borrower pursuant to
any intercorporate tax-sharing agreement for the immediately preceding
four fiscal quarters (ending on [fill in ending date for fiscal quarter]) = _________________
3. Consolidating income before taxes of the Borrower and Subsidiaries
(except Insurance Subsidiaries) for the immediately preceding four fiscal
quarters (ending on [fill in ending date for fiscal quarter]) = _________________
4. Total taxes (based on GAAP) paid by the Borrower on a consolidated
basis for the immediately preceding four fiscal quarters (ending on [fill in
ending date for fiscal quarter]) = _________________
5. Distributions by Borrower for the immediately preceding four
fiscal quarters (ending on [fill in ending date for fiscal quarter]). = _________________
6. The sum of line 1, line 2 and line 3 minus line 4 and line 5 = _________________
7. Total Interest Expense of the Borrower and its Subsidiaries on
a consolidated basis for the immediately succeeding four fiscal quarters
(beginning on [fill in the beginning date of the next succeeding quarter]) = _________________
8. Total mandatory reductions of Commitment for the succeeding four
fiscal quarters (beginning on [fill in the beginning date of the next
succeeding quarter]). = _________________
9. The sum of line 7 and line 8 = _________________
10. The ratio of line 6 to line 9 = _________________
11. The ratio in line 10 is not less than 1.2 to 1.0.
Section 7.18. Risk-Based Capital Ratio.
------------------------
1. The combined Risk-Based Capital Ratio of the Insurance Subsidiaries
of the Borrower as of the end of the fiscal quarter ending on [fill in ending
date for fiscal quarter] = _________________
2. The ratio in line 1 is not less than 200%.
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 6 of 6
<TABLE>
<CAPTION>
Section 7.19. Minimum Credit Ratings.
----------------------
<S> <C> <C>
1. The A.M. Best Rating of USF RE (until the USF RE Sale) = _________________
2. The A.M. Best Rating of VASA North Atlantic = _________________
3. The A.M. Best Rating of Seaboard. = _________________
4. The ratings in lines 1, 2 and 3 are not less than "A-".
Section 7.21. Debt to Capital Ratio.
---------------------
1. From the period of December 28, 1998 to June 30, 1999,
a. For the fiscal quarter ended [_________________], consolidated
Debt of the Borrower and its Subsidiaries = _________________
b. For the fiscal quarter ended [_________________], consolidated
GAAP Net Worth = _________________
c. Sum of lines a and b. = _________________
d. 45% of line c = _________________
e. Line a does not exceed line d.
2. After June 30, 1999,
a. For the fiscal quarter ended [_________________], consolidated
Debt of the Borrower and its Subsidiaries = _________________
b. For the fiscal quarter ended [_________________], consolidated
GAAP Net Worth = _________________
c. Sum of lines a and b. = _________________
d. 25% of line c. = _________________
e. Line a does not exceed line d.
Section 7.21. Investment in Subsidiaries.
--------------------------
1. Total Investment by Borrower in its Subsidiaries during
the current twelve-month period from the twelve-month period
commencing June17, 1999. =__________________
</TABLE>
<PAGE>
ATTACHMENT 3
to
Officer's Certificate
Page 7 of 6
2. Line 1 does not exceed $10,000,000 in the aggregate.
