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STOCK PURCHASE AGREEMENT

Purchase and Sale Agreement

STOCK PURCHASE AGREEMENT | Document Parties: AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY | Fidelity Excess and Surplus Insurance Company | Great American Insurance Company | James River Group, Inc You are currently viewing:
This Purchase and Sale Agreement involves

AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY | Fidelity Excess and Surplus Insurance Company | Great American Insurance Company | James River Group, Inc

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Title: STOCK PURCHASE AGREEMENT
Governing Law: Ohio     Date: 5/3/2005
Industry: Insurance (Prop. and Casualty)     Law Firm: Bryan Cave     Sector: Financial

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                            STOCK PURCHASE AGREEMENT



                                     between



                AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY,

                                     Seller,



                                       and



                            JAMES RIVER GROUP, INC.,

                                    Purchaser







                            Dated as of April 3, 2003


================================================================================
                                                                   
                                               



                                TABLE OF CONTENTS
                                                                   
        Page

ARTICLE 1 
DEFINITIONS.........................................................1

   1.1.   
DEFINITIONS.........................................................1

ARTICLE 2  SALE OF THE SHARES AND
CLOSING......................................4

   2.1.    SALE OF THE
SHARES..................................................4
   2.2.    PURCHASE
PRICE......................................................5
   2.3.   
CLOSING.............................................................5
   2.4.    POST CLOSING
ADJUSTMENT.............................................6

ARTICLE 3  REPRESENTATIONS AND
WARRANTIES......................................7

   3.1.    REPRESENTATIONS AND WARRANTIES OF
SELLER............................7
      3.1.1.    Organization, Authority, Standing, etc. of the
Company.........7
      3.1.2.   
Shares.........................................................8
      3.1.3.    Organization and Standing of Seller; Authority for
Agreement...8
      3.1.4.   
Consents.......................................................9
      3.1.5.    Financial
Statements...........................................9
      3.1.6.    Absence of Undisclosed
Liabilities............................10
      3.1.7.    Legal
Proceedings.............................................10
      3.1.8.    Compliance with
Law...........................................11
      3.1.9.    Insurance
Regulation..........................................11
      3.1.10.   Books and
Records.............................................12
      3.1.11.  
Taxes.........................................................12
      3.1.12.  
Brokers.......................................................15
      3.1.13.   Absence of Certain
Changes....................................15
      3.1.14.   Conduct of
Business...........................................15
      3.1.15.   Absence of
Claims.............................................15
      3.1.16.   No
Infringement...............................................16
      3.1.17.   Disclaimer of Other Representations and
Warranties............16
      3.1.18.   No Employee
Claims............................................16
      3.1.19.  
Contracts.....................................................16
   3.2.    REPRESENTATIONS AND WARRANTIES OF
PURCHASER........................17
      3.2.1.    Organization and Standing of
Purchaser........................17
      3.2.2.    Authority for
Agreement.......................................17
      3.2.3.   
Consents......................................................18
      3.2.4.   
Financing.....................................................18
      3.2.5.   
Brokers.......................................................18
      3.2.6.    Disclaimer of Other Representations and
Warranties............18

ARTICLE 4  CONDITIONS
PRECEDENT...............................................18

   4.1.    CONDITIONS TO THE OBLIGATIONS OF PURCHASER AND
SELLER..............18
   4.2.    CONDITIONS TO PURCHASER'S
OBLIGATIONS..............................19
   4.3.    CONDITIONS TO THE SELLER'S
OBLIGATIONS.............................20

ARTICLE 5 
COVENANTS..........................................................20

                                        i



   5.1.    CONDUCT OF BUSINESS OF THE
COMPANY.................................20
   5.2.    FILINGS AND
AUTHORIZATIONS.........................................21
   5.3.    FURTHER
ASSURANCES.................................................21
   5.4.    UNAUTHORIZED
REINSURANCE...........................................22
   5.5.    TRUST ACCOUNT
AGREEMENT............................................22
   5.6.   
EXCLUSIVITY........................................................23

ARTICLE 6  TAX
MATTERS........................................................23

   6.1.   
INDEMNITY..........................................................23
   6.2.    RETURNS AND
PAYMENTS...............................................24
   6.3.   
CONTESTS...........................................................25
   6.4     TIME OF
PAYMENT....................................................25
   6.5     COOPERATION AND EXCHANGE OF
INFORMATION............................26
   6.6.    TRANSFER
TAXES.....................................................26
   6.7.   
MISCELLANEOUS......................................................26
   6.8.    TAX
ELECTIONS......................................................27

ARTICLE 7 
TERMINATION........................................................28

   7.1.   
TERMINATION........................................................28
   7.2.    EFFECT OF
TERMINATION..............................................29

ARTICLE 8 
INDEMNIFICATION....................................................29

   8.1.    SURVIVAL OF REPRESENTATIONS AND
WARRANTIES.........................29
   8.2.    LIMITATIONS ON
INDEMNIFICATION.....................................30
   8.3.   
INDEMNITY..........................................................31
   8.4.    THIRD PARTY
CLAIMS.................................................31
   8.5.    EXCLUSIVE REMEDY,
ETC..............................................32

ARTICLE 9 
MISCELLANEOUS......................................................32

   9.1.   
NOTICES............................................................32
   9.2.    ENTIRE
AGREEMENT...................................................33
   9.3.   
EXPENSES...........................................................33
   9.4.    PUBLIC
ANNOUNCEMENTS...............................................33
   9.5.   
WAIVER.............................................................33
   9.6.   
AMENDMENT..........................................................34
   9.7.    NO THIRD PARTY
BENEFICIARY.........................................34
   9.8.    NO ASSIGNMENT; BINDING
EFFECT......................................34
   9.9.   
HEADINGS...........................................................34
   9.10.   INVALID
PROVISIONS.................................................34
   9.11.  
COUNTERPARTS.......................................................34
   9.12.   GOVERNING
LAW......................................................35
   9.13.   WAIVER OF JURY
TRIAL...............................................35


                                       ii



                                    SCHEDULES


Schedule 3.1.1(b)      Insurance Licenses

Schedule 3.1.1(c)      Surplus Lines Authority

Schedule 3.1.1(d)      Other Surplus Lines Activity

Schedule 3.1.4         Necessary Consents - Seller

Schedule 3.1.5         SAP Statements

Schedule 3.1.7         Litigation; Orders

Schedule 3.1.9         Restrictions on Authority

Schedule 3.1.11        Taxes

Schedule 3.1.11(k)     Taxes - Deferred Inter-Company Transactions

Schedule 3.1.19        Contracts

Schedule 3.2.3         Necessary Consents - Purchaser





                            STOCK PURCHASE AGREEMENT

     This Stock Purchase Agreement (this "Agreement"), dated as of
April 3,
2003, is made by and between American Empire Surplus Lines
Insurance Company, a
Delaware corporation ("Seller"), and James River Group, Inc., a
Delaware
corporation ("Purchaser").

                               W I T N E S S E T H

          WHEREAS, Seller is the owner of all of the issued and
outstanding
capital stock of Fidelity Excess and Surplus Insurance Company (the
"Company"),
an Ohio domiciled insurance company with 1,650,000 shares of common
stock, par
value $2.15 per share (the "Shares") outstanding; and

          WHEREAS, Seller desires to sell all of the Shares to
Purchaser, and
Purchaser desires to purchase all of the Shares from Seller, upon
the terms and
conditions and for the consideration described below;

          NOW, THEREFORE, in consideration of the foregoing and the
mutual
promises made herein and of the mutual benefits to be derived
herefrom, and for
other good and valuable consideration, the receipt and adequacy of
which is
hereby acknowledged, the parties hereto agree as follows:


                                    ARTICLE 1
                                   DEFINITIONS

     1.1. Definitions. The terms defined in this Article 1,
whenever used in
this Agreement, shall have the following meanings for all purposes
of this
Agreement.

          "Affiliate" of a specified Person means a Person that (at
the time
when the determination is to be made) directly, or indirectly
through one or
more intermediaries, controls, or is controlled by, or is under
common control
with, the specified Person. As used in the foregoing sentence, the
terms
"control" (including, with correlative meaning, the terms
"controlling,"
"controlled by" and "under common control with") means the
possession, directly
or indirectly, of the power to direct or cause the direction of the
management
and policies of a Person, whether through the ownership of voting
securities, by
contract or otherwise.

          "Affiliate Agreements" shall mean agreements between
Company and an
Affiliate except for the Reinsurance Agreement and the Trust
Account Agreement.

          "Agreement" shall have the meaning set forth in the
Preamble of this
Agreement.

          "Annual Statements" shall have the meaning set forth in
Section
3.1.5(a) of this Agreement.





          "Approvals and Filings" shall have the meaning set forth
in Section
3.2.3 of this Agreement.

          "Business Day" means a day of the year other than
Saturdays, Sundays
or any other days on which banks are not required or authorized to
close in
Ohio.

          "Closing" shall have the meaning set forth in Section
2.3(a) of this
Agreement.

          "Closing Balance Sheet" means the balance sheet of the
Company as of
the Closing Date to be delivered at or contemporaneously with the
Closing in
accordance with Section 2.3(c).

          "Closing Date" means the date on which the Closing shall
take place.

          "Closing Payment" shall have the meaning set forth in
Section 2.2 of
this Agreement.

          "Code" means the United States Internal Revenue Code of
1986, as
amended, or any successor thereto, including any rules and
regulations issued
thereunder.

          "Company" shall have the meaning set forth in the
Recitals of this
Agreement.

          "Consents" shall have the meaning set forth in Section
3.1.4 of this
Agreement.

          "Consolidated Return" means any consolidated, combined or
unitary Tax
Return which includes the Company.

          "Disclosure Schedule" means each of the Disclosure
Schedules referred
to herein, and all exhibits thereto.

          "Fair Market Value Adjustment" shall have the meaning set
forth in
Section 2.3(b) of this Agreement.

          "Insurance Licenses" shall have the meaning set forth in
Section
3.1.1(b) of this Agreement.

          "Indemnifiable Losses" shall have the meaning set forth
in Section
8.2(a) of this Agreement.

          "Information Returns" means, with respect to any entity
or group of
entities, any and all reports, returns, declarations or other
filings (other
than Tax Returns), including but not limited to, federal and state
wage
reporting, employment and unemployment Tax Returns (e.g. IRS Forms
940, 941,
W-2, W-3 and their state and local equivalents) as well as reports
of 


                                       2



payments made (e.g. IRS Forms 1099 and 1042), that are required
under Applicable
Law to be supplied to any Taxing Authority.

          "IRS" means the United States Internal Revenue Service.

          "Lien" means any lien, pledge, charge, security interest,
title
retention agreement, or other encumbrance or adverse claim of any
kind.

          "Material Adverse Effect" means any event or occurrence
which,
individually or together with any other such event or such
occurrence, has, or
would be reasonably likely to have or result in, a material adverse
effect on
business, assets, liabilities, financial condition or results of
operations of
the Company, taken as a whole, or which would interfere with or
delay the
consummation of the transactions contemplated hereunder.

          "Operations" means all insurance and reinsurance business
of the
Company, past or present.

          "Parties" shall have the meaning set forth in Section
7.1(a) of this
Agreement.

          "Person" means any individual, firm, partnership,
association,
corporation, trust, public or regulatory body, government or other
entity.

          "Purchase Price" shall have the meaning set forth in
Section 2.2 of
this Agreement.

          "Purchaser" shall have the meaning set forth in the
Preamble of this
Agreement.

          "Quarterly Statutory Statements" shall have the meaning
set forth in
Section 3.1.5(a) of this Agreement.

          "Reinsurance Agreement" means the Reinsurance Agreement
between
Company and Seller dated as of January 1, 2002 attached to this
Agreement as
Exhibit A hereto, as amended by the Amendment to Reinsurance
Agreement,
effective as of January 1, 2002, in the form attached hereto as
Exhibit C.

          "Responsible Officer" shall mean, with respect to any
Party, the
Chairman, President, Chief Financial Officer or Senior Vice
President of such
Party.

          "SAP" means (i) with respect to any annual statements and
other
financial reports of the Company, the statutory accounting
practices prescribed
or permitted by the Insurance Department of the State of Ohio for
the
preparation of such annual statements and other financial reports
and (ii) with
respect to the Estimated Closing Balance Sheet and the Closing
Balance Sheet,
the statutory accounting practices prescribed or permitted by the
Insurance
Department of the State of Ohio for the preparation of financial
statements of
insurance companies of the same general type as the Estimated
Closing Balance
Sheet and the Closing Balance Sheet.



                                       3



          "Seller" shall have the meaning set forth in the Preamble
of this
Agreement.

          "Shares" shall have the meaning set forth in the Preamble
of this
Agreement.

          "Statutory Statements" shall have the meaning set forth
in Section
3.1.5(a) of this Agreement.

          "Surplus as Regards Policyholders" shall mean surplus as
regards
policyholders based upon the Closing Balance Sheet as determined in
accordance
with SAP on the Closing Date after adjustments for termination of
the Affiliate
Agreements and the Fair Market Value Adjustment.

          "Tax Returns" means with respect to any entity or group
of entities,
all reports, estimates, extension requests, information statements
(including
Information Returns) and returns relating to, or required to be
filed in
connection with, any payment of any Tax.

          "Taxable Period" means, with respect to any Tax of any
entity, or any
group of entities filing a Consolidated Return for federal, state,
local or
foreign Tax purposes, the period for which the Tax is computed.

          "Taxing Authority" means the IRS and any other domestic
or foreign
governmental authority responsible for the administration of any
Tax.

          "Taxes" (or "Tax," where the context requires) means (i)
any and all
taxes, fees, charges, levies or assessments, including, but not
limited to, all
federal, state, local, foreign and other income, profits,
franchise, gross
receipts, capital, sales, use, value added, ad valorem, transfer,
employment,
social security, disability, health insurance, occupation,
property, severance,
production, premium, payroll, real and personal property, stamp,
unemployment
insurance, social security, disability, workers compensation,
withholding,
excise and other taxes, duties and other similar governmental
charges and
assessments which are in the nature of a tax, (ii) any interest,
penalties,
fines and additions thereto and (iii) liability, if any, of others,
including
transferee liability, liability pursuant to Treasury Regulation
section 1.1502-6
(or similar state, local or foreign law) or otherwise for any of
(i) or (ii).

          "Trust Account Agreement" shall have the meaning set
forth in Section
5.4 of this Agreement.


                                    ARTICLE 2
                         SALE OF THE SHARES AND CLOSING

     2.1. Sale of the Shares. Subject to the terms and conditions
of this
Agreement and in reliance upon the representations, warranties and
covenants
contained herein, at the Closing provided for in Section 2.3,
Seller will sell,
and Purchaser will purchase, the Shares free and clear of all Liens
for the
consideration specified in Section 2.2.



                                       4



     2.2. Purchase Price. The purchase price for the Shares shall
be $4,100,000 
(the "Purchase Price") plus the Surplus as Regards Policyholders of
the Company
(the "Closing Payment") payable in immediately available funds at
the Closing
(as hereinafter defined).

     2.3. Closing.

          (a) The closing of the sale and purchase of the Shares
(the "Closing")
     will take place at the offices of Seller, 580 Walnut Street,
Cincinnati,
     Ohio, at 10:00 A.M., Ohio time, no later than the 5th Business
Day after
     the fulfillment or waiver of the conditions precedent
specified in Article
     4 (other than those conditions that by their nature are to be
satisfied at
     the Closing, but subject to the fulfillment or waiver of those
conditions),
     or on such other day as shall be agreed by Seller and
Purchaser.

          (b) Not later than ten (10) Business Days prior to the
Closing Date,
     Seller will deliver to Purchaser a draft of the Closing
Balance Sheet in
     agreed form, specifying all of the assets of the Company, and
their
     respective values, as of the Business Day immediately
preceding the date of
     preparation thereof. The Purchaser may, for any or no reason,
by written
     notice to Seller provided not later than the third Business
Day prior to
     the Closing Date, require Seller to substitute specified
assets reflected
     on the draft Closing Balance Sheet with cash in an amount
equal to the
     Market Value of such asset(s). No such cash may be removed
from the Company
     or encumbered prior to Closing. Seller will recalculate the
Closing Balance
     Sheet as of a day that is not more than two (2) Business Days
prior to the
     Closing Date to reflect any such substitutions and any changes
in Market
     Values. For purposes of calculating the Purchase Price, the
Surplus as
     Regards Policyholders of the Company, which will also be
reflected in the
     Closing Balance Sheet, will be adjusted by the difference
between the
     statutory book value of the Investment Portfolio and the
Market Value
     thereof (the "Fair Market Value Adjustment"). Seller and
Purchaser shall
     use their good faith efforts to, as promptly as possible
following the
     execution of this Agreement but in any event by the third
Business Day
     prior to the Closing, agree on the method used to determine
the Fair Market
     Value Adjustment. For any security within the Investment
Portfolio, "Market
     Value" will mean the closing price of such security on the
trading day
     immediately preceding the date of determination, as reported
by Bloomberg,
     L.P., or any successor performing its function of reporting
securities
     prices.

          (c) At the Closing:

               (i) Seller shall transfer to Purchaser, free and
clear of all
     Liens (other than restrictions on transfer under federal and
state
     securities laws) the certificates representing the Shares,
duly endorsed
     for transfer or accompanied by duly executed stock powers in
favor of
     Purchaser with all necessary stock transfer tax stamps affixed
thereto.

               (ii) Seller shall deliver the Closing Balance Sheet.

                                       5



               (iii) Purchaser shall pay the Closing Payment to
Seller by a wire
     transfer of immediately available funds to such account as
Seller shall
     have designated in writing to Purchaser at least two business
days prior to
     the Closing Date.

               (iv) Seller shall deliver (x) an Amendment To
Reinsurance
     Agreement in the form attached hereto as Exhibit C and (y) the
Trust
     Account Agreement.

     2.4. Post Closing Adjustment.

          (a) No later than twenty (20) Business Days after the
Closing Date,
Seller shall deliver to Purchaser a statement (the "Closing
Statement") setting
forth the Closing Balance Sheet and the corresponding Surplus as
Regards
Policyholders which, solely for purposes of this Section 2.4(a),
will reflect
that the Investment Portfolio is marked to market as of the close
of business on
the Closing Date (the "Surplus"). Purchaser shall notify Seller in
writing (the
"Disagreement Notice") within ten (10) Business Days immediately
after receiving
the Closing Statement if it reasonably determines that the Closing
Statement
does not fairly present the Surplus. If no Disagreement Notice is
received by
Purchaser within such ten (10) Business Days, then the Closing
Statement shall
be deemed to be accepted by Purchaser and shall become final and
binding upon
the parties hereto.

          (b) During the thirty (30) days immediately following the
delivery of
the Disagreement Notice, if any, Seller and Purchaser shall seek in
good faith
to resolve any differences that they may have with respect to any
matter
specified in the Disagreement Notice. If, at the end of such thirty
(30) day
period, Seller and Purchaser have been unable to resolve such
differences, they
shall promptly choose an independent national accounting firm (the
"Independent
Accountant"). If the Parties are unable to agree upon such a firm
within ten
(10) Business Days after the end of such thirty (30) day period,
Seller, on the
one hand, and Purchaser, on the other hand, shall each promptly
select one such
firm and these two firms shall select a third firm, in which event
"Independent
Accountant" shall mean such third firm. The Parties shall submit to
the
Independent Accountant for review and resolution any and all
matters that remain
in dispute with respect to the Disagreement Notice, and the opinion
of the
Independent Accountant as to the Surplus, which shall be delivered
in writing
within 20 Business Days from such appointment, shall be final and
binding upon
the Parties; provided, however, that the Independent Accountant may
only
determine (and its review will be limited to such determination)
whether the
Purchaser's or the Seller's 's position(s) shall be adopted. The
expenses of the
Independent Accountant shall be borne by the Party that does not
prevail in such
determination.

          (c) The Closing Statement (and the Surplus set forth
thereon), as
finalized (if applicable) pursuant to any agreements reached by the
parties
hereto and/or the opinion of the Independent Accountant pursuant to
Section
2.4(b), shall be used to determine adjustments to the Closing
Payment, as
defined in Section 2.2. In the event that the amount equal to (i)
Surplus (as
determined in accordance with Section 2.4) minus (ii) Estimated
Surplus is
greater than zero, Purchaser shall pay to Seller, no later than
five (5)
Business Days immediately following the 


                                       6



finalization of Surplus in accordance with this Section 2.4, the
full amount of
such difference by wire transfer of immediately available funds to
the account
designated pursuant to Section 2.3(b)(v). In the event that the
amount equal to
(i) Surplus (as determined in accordance with Section 2.4) minus
(ii) Estimated
Surplus is less than zero, Seller shall pay to Purchaser, no later
than five (5)
Business Days immediately following the final determination of
Surplus in
accordance with this Section 2.4, the full amount of such
difference by wire
transfer of immediately available federal funds to an account
designated by
Purchaser.


                                    ARTICLE 3
                         REPRESENTATIONS AND WARRANTIES

     3.1. Representations and Warranties of Seller. Seller
represents and 
warrants to Purchaser as follows:

          3.1.1. Organization, Authority, Standing, etc. of the
Company.

          (a) The Company is a stock property and casualty
insurance corporation
     duly organized, validly existing and in good standing under
the laws of the
     State of Ohio. The Company has a valid, effective and
subsisting
     certificate of authority from the Superintendent of Insurance
of the State
     of Ohio (the "Ohio Insurance License") and has all requisite
corporate and
     legal power, license and authority to carry on and transact
all the kinds
     of insurance business permitted by its Ohio Insurance License
and to own or
     lease and to operate its assets, properties and business both
as now
     carried on and as permitted to be carried on pursuant to the
Ohio Insurance
     License.

          (b) The Company is duly licensed, qualified and admitted
to do
     business as a domestic or foreign insurance corporation under
the laws of
     the states set forth on Schedule 3.1.1(b) and is in good
standing in all
     such states. The Company has a valid, effective and existing
certificate,
     license or other document issued by the commissioner of
insurance or other
     regulatory official, agency or body of a state or the federal
government
     evidencing the authority of the Company to carry on and
transact insurance
     business within such official's, agency's or body's
jurisdiction (a
     "Certificate of Authority") and has full requisite corporate
and legal
     authority to carry on and transact all the kinds of insurance
business
     permitted by its Certificate of Authority in each such
jurisdiction, and to
     own, lease and operate its assets, properties and business
both as now
     carried on and as permitted to be carried on pursuant to each
such
     Certificate of Authority. The Ohio Insurance License and the
Certificates
     of Authority are collectively referred to as the "Insurance
Licenses".

          (c) The Company is an approved, eligible or recognized
surplus lines
     insurer with authority to transact surplus lines insurance in
and subject
     to the insurance laws and regulations of the states set forth
on Schedule
     3.1.1(c). The Company has full requisite corporate and legal
authority to
     carry on and transact the kind of insurance business permitted
by its
     status in each such jurisdiction.


                                       7



          (d) The Company is not ineligible or unauthorized to
transact or
     otherwise prohibited from transacting, surplus lines insurance
in the
     states set forth on Schedule 3.1.1(d). The Company has full
requisite
     corporate and legal authority to carry on and transact the
kind of
     insurance business permitted by its status in each such
jurisdiction.

          3.1.2. Shares.

          (a) The authorized capital stock of the Company consists
solely of the
     Shares. No security or capital stock of the Company are issued
and
     outstanding other than the Shares. All of the Shares have been
duly
     authorized and validly issued and are fully paid,
non-assessable and free
     of preemptive rights. No subscriptions, options, warrants,
calls or rights
     of any kind to purchase or otherwise acquire, and no
securities convertible
     into, or exchangeable for, capital stock of the Company are
outstanding, no
     authorization therefor has been given and there are no
agreements or
     commitments obligating the Company to issue, sell or acquire
any shares of
     its capital stock or any rights with respect thereto and no
Person has any
     right of first refusal, preemptive right, subscription right
or similar
     right with respect to any shares of the Company's capital
stock either
     pursuant to any agreement or arrangement with or binding upon
the Company.

          (b) Seller is the sole lawful record and beneficial owner
of the
     Shares free and clear of any Liens, and, upon the delivery to
Purchaser of
     the certificates representing the Shares, duly endorsed for
transfer or
     accompanied by stock powers in favor of Purchaser, and payment
by Purchaser
     of the Closing Payment at the Closing, as provided for in this
Agreement,
     Purchaser will acquire good and valid title to the Shares,
free and clear
     of any Liens, other than restrictions on transfer under
federal and state
     securities laws and regulations and except for any Liens
created by the
     Purchaser.

          3.1.3. Organization and Standing of Seller; Authority for
Agreement.

          (a) Seller is a corporation duly organized, validly
existing and in
     good standing under the laws of the State of Delaware, and has
full
     corporate power and authority to execute and deliver this
Agreement and
     each of the other agreements, instruments and documents
contemplated
     hereby, to which Seller is a party, and to carry out its
obligations
     hereunder and thereunder. The execution, delivery and
performance of this
     Agreement and each of the other agreements, instruments and
documents
     required by the terms of this Agreement to be executed and
delivered by
     Seller or the Company, as the case may be, and the performance
of all
     transactions herein or therein contemplated, have been duly
authorized by
     all necessary corporate action on the part of Seller or the
Company, as the
     case may be, including the consent of all stockholders to the
extent
     required, and no further corporate or other action on the part
of Seller or
     the Company, as the case may be, is necessary to authorize
such execution,
     delivery and performance. This Agreement has been duly
executed and
     delivered by Seller and constitutes, and each of the other
agreements,
     instruments and documents required by the terms of this


                                       8




     Agreement to be executed and delivered by Seller or the
Company, as the
     case may be, when so executed and delivered will constitute,
the valid and
     legally binding obligation of Seller or the Company, as the
case may be,
     enforceable against Seller or the Company, as the case may be,
in
     accordance with their respective terms, subject, in each case,
to
     applicable bankruptcy, rehabilitation, insolvency,
liquidation, moratorium
     and similar laws relating to or affecting the rights of
creditors
     generally, and general principles of equity, now or hereafter
in effect.

          (b) Neither the execution and delivery of this Agreement,
any of the
     other agreements, instruments and documents contemplated
hereby to be
     executed and delivered by Seller or the Company, as the case
may be, nor
     the consummation of the transactions contemplated hereby or
thereby will
     (i) conflict with, result in a breach or violation of or
constitute a
     default under the articles, certificate, by-laws or
regulations of Seller
     or the Company, as the case may be, or (ii) assuming all
regulatory and
     governmental approvals sought by the Parties hereunder have
been obtained,
     including all of those which are required to be obtained by
Seller (all of
     which are listed on Disclosure Schedule 3.1.4 hereof),
conflict in any
     respect with, result in a breach of or constitute a default
under any court
     or administrative order or process, judgment, decree, statute,
law,
     ordinance, rule or regulation or any agreement, license
(including any
     Insurance License), binding arrangement or commitment to which
Seller or
     the Company, as the case may be, is a party or by which any of
them is
     subject or bound, (iii) result in the creation of, or give any
Person the
     right to create, any Lien, upon the property and assets of the
Company or
     any Lien upon any of the Shares other than restrictions on
transfer under
     federal and state securities laws and regulations, or (iv)
assuming all
     regulatory and governmental approvals sought by the Parties
hereunder have
     been obtained, violate the terms and conditions of, or, result
in the loss
     or suspension of, any license or other legal or contractual
right enjoyed
     by the Company.

          3.1.4. Consents. Assuming the accuracy of the
representations and
     warranties set forth in Section 3.2.3, no consent, license,
approval, order
     or authorization of, or registration, declaration or filing
with, any third
     party or any governmental authority, agency, bureau or
commission is
     required to be obtained or made by Seller or the Company in
connection with
     the execution, delivery, performance, validity, and
enforceability of this
     Agreement, the sale of the Shares or the consummation of any
of the other
     transactions contemplated hereunder, except for approvals (the
"Consents")
     of: (i) the filings to be made with, and approvals to be
obtained from, the
     Ohio Department of Insurance with respect to the transfer of
control of the
     Company and (ii) the filings to be made with, and approvals to
be obtained
     from, other state insurance departments with respect to the
transactions
     contemplated hereunder, all of which are set forth on
Disclosure Schedule
     3.1.4 hereof and (iii) the registrations, declarations or
filings required
     to be made by Seller subsequent to the Closing not entailing
any
     requirement of consent, license, approval, order or
authorization on the
     part of any governmental entity or third party.

          3.1.5. Financial Statements.


                                       9



          (a) Seller has delivered to Purchaser complete and
correct copies of
     (i) the Annual Statement of the Company filed with the Ohio
Department of
     Insurance for the years ended December 31, 1999, 2000, 2001
and 2002 (the
     "Annual Statements") and (ii) the Quarterly Statutory
Statements of the
     Company for the periods ended March 31, June 30 and September
30, 2002
     filed with the Ohio Department of Insurance (the "Quarterly
Statutory
     Statements") (the Annual Statements and the Quarterly
Statutory Statements
     are collectively referred to as the "Statutory Statements").

          (b) The Statutory Statements have been prepared in
accordance with
     practices, prescribed or permitted by the Ohio Department of
Insurance, and
     all such accounting practices have been applied on a
consistent basis,
     except as expressly set forth or disclosed in the notes,
exhibits or
     schedules thereto or as required by changes in accounting
conventions by
     the Ohio Department of Insurance. The Statutory Statements
have been
     prepared in accordance with the books and records of the
Company and
     present fairly the statutory financial condition of the
Company as at the
     dates thereof and the statutory results of its operations, and
statements
     of cash flow, in accordance with accounting practices
prescribed or
     permitted by the Ohio Department of Insurance. Except as set
forth on
     Disclosure Schedule 3.1.5, no deficiency has been communicated
either
     orally or in writing to the Company with respect to any of the
Statutory
     Statements.

          3.1.6. Absence of Undisclosed Liabilities. Except for
liabilities
     specifically reflected as to nature and amount in the
Statutory Statements,
     or liabilities incurred in the ordinary course of business
since December
     31, 2002, the Company does not have any liabilities or
obligations of any
     nature, whether known or unknown, absolute, accrued, matured
or unmatured,
     contingent or otherwise, and whether due or to become due.
Except for
     liabilities specifically reflected as to nature and amount in
the Closing
     Balance Sheet, on the Closing Date, the Company will not have
any
     liabilities or obligations of any nature, whether known or
unknown,
     absolute, accrued, matured or unmatured, contingent or
otherwise, and
     whether due or to become due other than those specifically
reflected
     therein.

          3.1.7 Legal Proceedings. Except as set forth on Schedule
3.1.7, there
     is no judicial, administrative or regulatory action,
arbitration, hearing,
     proceeding, investigation, inquiry, claim (other than any
insurance claim
     in the ordinary course of business consistent with past
practice),
     administrative charge or complaint pending or, to the
knowledge of Seller,
     threatened (or any material basis therefor is known to Seller
or the
     Company) against, affecting or involving the Company whether
at law, in
     equity or admiralty; and whether or not before any court,
arbitrator,
     governmental department, commission, board, agency or
instrumentality,
     domestic or foreign (collectively "Actions") which pertain to
or involve
     the Company or any property of the Company (including, without
limitation,
     any which involve Taxes or Insurance Licenses) or any aspect
of the
     business or operation of the Company in any material respect,
or the
     ability of the Company to conduct or transact any insurance
business or to
     consummate the transactions contemplated by this Agreement.
Except as set
     forth in Schedule 3.1.7, there 


                                       10



     are no orders, decrees, restrictions or injunctions (other
than those
     generally applicable to all companies in the same line of
business) of any
     court, arbitrator, governmental department, commission, board,
agency or
     instrumentality, domestic or foreign, issued or outstanding
against or
     which affect the Company or any property of the Company
(including, without
     limitation, any which involve Taxes or Insurance Licenses) or
any aspect of
     the business or operation of the Company, or the ability of
the Company to
     conduct or transact any insurance business or to consummate
the
     transactions contemplated by this Agreement that remain
unsatisfied or
     require continuing compliance.

          3.1.8. Compliance with Law. The Company has conducted,
and is now
     conducting, its business and operations in compliance with all
applicable
     domestic and foreign laws, rules, regulations, judgments, and
court or
     administrative orders, permits and approvals (including,
without
     limitation, those of state insurance departments). The Company
has all
     permits, licenses, orders or approvals of any federal, state
or local
     governmental or regulatory body which are material to the
conduct of its
     business and operations. All such permits, licenses (including
the
     Insurance Licenses), orders and approvals are in full force
and effect,
     neither Seller nor the Company has received any written or
oral notice
     regarding any violations, and no proceeding or, to the
knowledge of Seller,
     investigation, is pending, or to the knowledge of Seller or
the Company
     threatened, to revoke any such permit, license, order or
approval. The
     Company has filed or otherwise provided all forms, reports,
documents, data
     and other information with or to, as the case may be, the Ohio
Department
     of Insurance and each insurance department of any other state
or
     jurisdiction having jurisdiction required to be filed by it or
otherwise
     provided pursuant to insurance laws and the rules and
regulations
     thereunder and has complied in all material respects with all
applicable
     requirements of such laws and the rules promulgated
thereunder. All
     required regulatory approvals in respect of any such filings
are in full
     force and effect. All such regulatory filings were in material
compliance
     with applicable law when filed and, to the knowledge of Seller
or the
     Company, no deficiencies have been asserted by any
governmental authority
     with respect to any regulatory filings that have not been
satisfied and no
     filings or failure to make filings have or will result in a
fine or
     penalty.

          3.1.9. Insurance Regulation.

               (a) True, complete and accurate copies of the
licenses (including
     the Insurance Licenses), certificates or other documentation
evidencing the
     Company's ability to transact insurance business have been
furnished to or
     made available to Purchaser. Except as set forth in Disclosure
Schedule
     3.1.9, as restricted by their own terms, or as generally
imposed by law on
     the same type of insurance companies, such licenses,
certificates and other
     indicia of authority are without restrictions or limitations
imposed by any
     regulatory authority. Except as set forth in Disclosure
Schedule 3.1.9,
     there are no agreements with any regulatory authority which
restrict or
     limit the Company's operation in any state or other
jurisdictions in which
     it currently holds a license or is authorized to do business,
or otherwise
     impose any obligations on the 


                                       11



     Company in respect of a license or authorization to do
business. Except as
     set forth on Disclosure Schedule 3.1.9, within the last three
years, the
     Company has not been involved in any proceeding to revoke,
restrict or
     suspend its license (including the Insurance Licenses) or
other
     qualification in any jurisdiction, nor are any proceedings
therefor pending
     or, to the knowledge of Seller, threatened. The Company is not
subject to
     any restrictions or disapprovals nor has any license or permit
been revoked
     in any states where the Company is not doing business except
for
     restrictions or disapprovals which are applicable to surplus
lines
     companies in general. There are no outstanding orders
applicable to the
     Company issued by any regulatory authority (other than
regulations
     generally applicable to companies in the same line of
business) that
     restrict the Company's ability to pay dividends or regulate or
establish
     levels of reserves or other financial ratios. The Company
shall have
     applied for renewal of all licenses (including the Insurance
Licenses) and
     authorizations expiring prior to the Closing Date and shall
use its best
     efforts or cooperate with Purchaser to file for renewals of
any licenses or
     authorizations expiring within sixty days after the Closing
Date.

               (b) Each surplus lines broker, at the time such
broker wrote,
     sold, or procured business for the Company, was duly licensed
and properly
     appointed as an insurance producer with proper authorization
for the type
     of business written, sold, or procured by such broker in their
jurisdiction
     of domicile to the extent required by applicable law. If such
broker wrote,
     sold, or procured business for the Company in other
jurisdictions, to the
     extent required by applicable law, one of the following
conditions applied:
     (i) the insurance agent producing the business was properly
licensed as a
     surplus lines agent and/or broker in the applicable
jurisdiction, (ii) a
     courtesy surplus lines filing was made by a properly licensed
surplus lines
     agent and/or broker in the applicable jurisdiction, (iii) a
filing was made
     by the insured in accordance with the self-procurement
statutes and/or
     regulations of the applicable jurisdiction, or (iv) the
surplus lines
     broker was licensed as a non-resident surplus lines agent
and/or broker in
     the applicable jurisdiction.

          3.1.10. Books and Records. The books and records of the
Company are
     true, complete and accurate in all material respects and have
been
     maintained in accordance with good business practices and all
applicable
     laws and regulations.

          3.1.11. Taxes. Except as set forth on Schedule 3.1.11:

               (a) The Seller and the Company have timely filed
with the
     appropriate Taxing Authorities all Tax Returns and Information
Returns
     required to be filed through the Closing Date (taking into
account all
     valid extensions as listed in Schedule 3.1.11) and all such
Tax Returns and
     Information Returns are complete and correct. In particular,
and without in
     any manner limiting the foregoing, none of the foregoing
returns contains
     any position which is or would be subject to penalties under
Section 6662
     of the Code (or any corresponding provisions of state, local
or foreign tax
     laws).



                                       12



               (b) All Taxes of the Company that are due and
payable on or
     before the Closing Date hereof have been timely paid.

               (c) The Company has provided a sufficient reserve
for Taxes on
     the financial statements for the period ended as of the end of
the Closing
     Date whether or not the Closing Date is at the end of a
Taxable Period.

               (d) There are no Liens for Taxes on any of the
assets of the
     Company other than for Taxes not yet due and payable.

               (e) The Company has withheld and timely paid over
all Taxes
     required to have been withheld and paid in connection with
amounts paid or
     owing, including, but not limited to, withholding of Taxes
pursuant to
     section 1441 of the Code, with respect to any employee salary,
wages or
     other compensation, creditor, stockholder or other Person.

               (f) No federal, state, local or foreign
investigation audit or
     other administrative proceeding or court proceeding (each an
"Audit")
     exists or has been initiated with regard to Taxes or Tax
Returns with
     respect to the Company. No notice has been received that any
such Audit is
     pending or threatened with respect to any Taxes due from the
Seller or with
     respect to the Company or any Tax Return filed by the Seller
or with
     respect to the Company. Neither the Seller nor the Company has
waived any
     statute of limitations with respect to any taxes nor has
agreed to any
     extension of time with respect to a tax assessment or
deficiency. The
     issues raised by the Taxing authorities in the Audits
identified on
     Schedule 3.1.11, if each were fully resolved in favor of the
Taxing
     authority, would not have a material adverse effect on the
Seller and its
     Affiliates in the aggregate. Within the last five (5) years,
no request for
     information with respect to Taxes has been made of the Company
(or any
     Person with respect to the Company) by any Taxing authority
where the
     Company does not file Tax Returns.

               (g) All contracts or intercompany account systems
under which the
     Company has, or may at any time in the future have, an
obligation to
     

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